Cross-Price Elasticity of Demand Measure
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A Cross-Price Elasticity of Demand Measure is an economic elasticity measure that quantifies the percentage change in economic demand for one economic resource in response to a price change in another economic resource.
- AKA: Cross Elasticity of Demand, Cross-Price Elasticity, Cross-Price Demand Response.
- Context:
- It can measure Economic Relationships through demand sensitivity and price responses.
- It can identify Product Relationships through substitution effects and complementary effects.
- It can guide Pricing Strategys through competitive analysis and market positioning.
- It can inform Market Structure Analysis through product interdependence patterns.
- ...
- It can often reveal Market Segments through consumption patterns.
- It can often predict Demand Shifts through price change impacts.
- It can often support Product Planning through portfolio analysis.
- ...
- It can range from being a Strong Negative Elasticity to being a Strong Positive Elasticity, depending on its product relationship type.
- It can range from being a Short-Term Elasticity to being a Long-Term Elasticity, depending on its time horizon.
- ...
- It can interact with Own-Price Elasticity through demand systems.
- It can affect Marketing Strategy through competitive responses.
- It can influence Product Design through feature selections.
- ...
- Examples:
- Product Demand Elasticitys, such as:
- Substitute Product Elasticitys, such as:
- Beverage Cross-Price Elasticity between coffee and tea.
- Transportation Cross-Price Elasticity between public transit and private cars.
- Complementary Product Elasticitys, such as:
- Printer Cross-Price Elasticity between printers and ink cartridges.
- Gaming Cross-Price Elasticity between consoles and games.
- Substitute Product Elasticitys, such as:
- Input Demand Elasticitys, such as:
- Labor Cross-Price Elasticitys, such as:
- Resource Cross-Price Elasticitys, such as:
- Energy Cross-Price Elasticity between electricity and natural gas.
- Material Cross-Price Elasticity between input substitutes.
- ...
- Product Demand Elasticitys, such as:
- Counter-Examples:
- Own-Price Elasticity of Demand, which measures demand response to a product's own price change.
- Income Elasticity of Demand, which measures demand response to income changes.
- Price Elasticity of Supply, which measures supply response to price changes.
- See: Demand Analysis, Market Structure, Product Relationship, Elasticity Measure, Price Theory, Economic Cost Disease System.
References
2016
- (Wikipedia, 2016) ⇒ http://en.wikipedia.org/wiki/cross_elasticity_of_demand Retrieved:2016-1-5.
- In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris paribus. It is measured as the percentage change in quantity demanded for the first good that occurs in response to a percentage change in price of the second good. For example, if, in response to a 10% increase in the price of fuel, the demand of new cars that are fuel inefficient decreased by 20%, the cross elasticity of demand would be: [math]\displaystyle{ \frac{-20 \%}{10 \%}=-2 }[/math] . A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two substitute products. Assume products A and B are complements, meaning that an increase in the demand for A accompanies an increase in the quantity demanded for B. Therefore, if the price of product B decreases, the demand curve for product A shifts to the right, increasing A's demand, resulting in a negative value for the cross elasticity of demand. The exact opposite reasoning holds for substitutes.
2004
- (Litman, 2004) ⇒ Todd Litman. (2004). “Transit Price Elasticities and Cross-elasticities.” In: Journal of Public Transportation, 7(2).
1988
- (Cooper, 1988) ⇒ [[Lee G. Cooper. (1988). “Competitive Maps: The Structure Underlying Asymmetric Cross Elasticities.” In: Management Science, 34(6).