What Is the Cross Elasticity of Demand?

The cross-price elasticity of demand indicates the degree of response of the change in the demand for a commodity to the price change of its related commodity within a certain period.

Demand cross price elasticity

Right!

Cross-price elasticity of demand, which represents the

cross-price elasticities of demand

Represents the change in the price of one commodity by one percent in another period

First, according to the analysis of the cross-elasticity range of demand, we can determine that the products of Exy & gt; 0 are mutually replaceable products. The larger the value of Exy, the stronger the substitution between products, and the smaller the value of Exy, the substitution between products Weaker. Exy & lt; o's products are complementary products. The larger | Exy |, the stronger the complementarity of the products, and the smaller | Exy |, the worse the complementarity of the products. Exy = 0 products are neither substitutes nor complementary products, and there is no cross relationship between the two.
Secondly, we can put together a large number of commodities in | Exy | to form an industry or form a store for production and management, and often receive higher economic benefits.
Third, mastering the theory and method of cross elasticity of demand will help enterprises formulate pricing strategies for their own products. Especially for some large enterprises, they often have multiple production lines and produce products that are replaced or complemented each other. The cross-elasticity of demand is used to analyze the risk issues between various products. Starting from the overall goal, overall planning and coordinated cross Product marketing strategies are necessary. For example, Kodak abandoned the patent and technology loss of point-and-shoot cameras in time, but the total revenue was compensated from the unprecedented sales and steady sales of Kodak film, and it obtained long-term stable profits for the company.
Fourth, companies can use the cross-elasticity of demand to measure product cross-relationships among various departments and formulate correct product competition strategies. For example, in the late 1970s, competition in the automotive industry intensified, and the competition between American "GM" and Japanese "Toyota" was fierce in the production of economic vehicles. Small companies that produce small, cheap, and high-tech "savvy cars" "economic cars" are also faced with a choice, either to produce auto parts or continue to produce "economic cars" or to fight for "expensive cars". Through the market survey of "expensive cars", Saab company analyzed and predicted the price elasticity of demand for "expensive cars" and the cross-elasticity of demand relative to various "economic cars". In 1979, the new SAAB9O00 turbocharger was "expensive" "Vehicles", won the fierce market competition with "economic vehicles" such as the United States "GM" and "Toyota" in Japan. In 1983, the sales growth rate reached 42%, becoming the highest sales growth rate among all automobile industries. Small companies stand out from the fierce market competition with a small amount of financial resources and production capacity. One of the reasons is that they benefit from the cross-elasticity theory and methods of demand.
Fifth, in the fierce market competition, the cross-elasticity information of demand can provide the basis for the price competition strategy of the enterprise. For example, when "Changhong" manufacturers are considering price reduction strategies, they must estimate the possible response of their alternative products such as "TCL", "Hisense" and "Konka", and further analyze how the opponent's response will sell to themselves. The impact of this, in order to judge whether their price reduction strategy is feasible. The "water dispenser" manufacturing industry would like to know how much the price reduction of "purified water" can promote the demand for "water dispensers", so it is considered whether the "purified water" manufacturers should be given some support.