**6.3. Market size, innovation, and changing demand elasticity**

In one of the first studies investigating the relationship between market size and innovation, Griliches [31] put forward in 1957 the existence of a significant relationship between technological change and technological adaptation and profitability and market size. In other studies analyzing different sectors following this study, a significant relationship between market size and innovation and innovation elasticity was exhibited [32–34]. In this context, the innovation process, which improves as market size grows, increases price elasticity of demand by supporting the increase of product range [35].

In the light of these analyses, macroeconomic variables, such as short and long term structures, commerce liberalization and competition, market size, and innovation, affect and change the price elasticity of demand for luxury and necessity goods. This change generally reveals itself as the increase of price elasticity of demand for goods. This macrochange of demand elasticity in both luxury and necessity goods composes a risk for firms in microterms. On the other hand against this risk, firms try to decrease the demand elasticity for their products by creating brands and increasing loyalty to these brands [8].

Brand loyalty decreases the sensitivity of consumers to the prices of products especially in product groups such as technological products and automobiles. At this point, it is useful to mention about brand loyalty as a microvariable effective on price elasticity of demand.
