This study analytically and empirically examines firm pricing behavior based on demand elasticity within the framework of microeconomic theory. According to microeconomic theory, the primary objective of firms is profit maximization, and in line with this objective, firms determine their pricing and output decisions on the basis of marginal analysis. Firms operating under imperfect competition face a downward-sloping demand curve; therefore, a systematic gap emerges between price and marginal cost. The main determinant of this gap is demand elasticity. When demand is more inelastic, firms are able to set prices above marginal cost to a greater extent.

First, the relationship between marginal revenue and demand elasticity is mathematically derived, and it is demonstrated that the optimal pricing rule can be expressed in terms of demand elasticity. In addition, using the Lerner index, the relationship between firm market power and demand elasticity is analytically established. Numerical simulation results indicate that as demand elasticity decreases, the markup ratio increases and firms’ market power strengthens.

The empirical analysis uses data from the Turkish fuel market covering the period 2015–2025. Brent oil prices, exchange rates, and gasoline prices are employed to estimate marginal cost, markup ratios, and demand elasticity. The findings show that fuel prices are systematically formed above marginal cost and that demand is inelastic. Moreover, a high degree of consistency is observed between the prices predicted by the theoretical model and the actual market prices. These results suggest that the demand elasticity-based optimal pricing model provides a strong analytical framework for explaining firm behavior.