[Thurston_Howell_III]

Not always. There are various pricing strategies and the above is only one strategy. See Wall Mart for instance whose profit strategy is based on high volume sales driven by low price.

Sure, but now you're talking about a dynamic price along a dynamic demand curve. Depending on the elasticity, if you shift the price you also shift the demand. If Wal Mart can sell 5 units at 2 dollars apiece and they now sell 15 units at 1 apiece, thereby increasing their aggregate take, they will price at the latter. Notice that in this example the demand shifts. If the demand didn't shift at different price levels, then they will price as high as possible. If Walmart will sell 5 units regardless of whether they're priced at 2 dollars or 100 dollars, they're going to sell them for 100 dollars.

Maybe my comment should have read that they will price as high as possible at a certain demand level. The idea that higher costs will affect demand is solid, however, its not honest to think that demand will remain the same and any price increases will be passed through to the customer without affecting it.

[Ditto]

Sure, but now you're talking about a dynamic price along a dynamic demand curve. Depending on the elasticity, if you shift the price you also shift the demand.

In the case of a retailer such as Wall Mart (or CVS in this story) it is not about shifting the demand curve --- it is virtually a fixed demand. Only so much soap or toothpaste or prescription drugs are demanded by the market. Lower price does not increase aggregate demand.

It is about capturing market share from competitive retailers by lowering price and spreading their fixed costs over a far greater number of units sold while also gaining increased purchasing power from manufactures and lowering variable costs as well.

In the meantime, the consumer benefits from lower retail prices by making the entire supply chain more efficient.