Business – 8.1 Marketing analysis – Elasticity | e-Consult
8.1 Marketing analysis – Elasticity (1 questions)
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Cross‑price elasticity (XED) measures the percentage change in the quantity demanded of one good following a price change in another. Its reliability can be compromised by:
- Dynamic consumer tastes: A product that is a substitute today may become a complement tomorrow if consumer lifestyles evolve (e.g., tablets vs. laptops).
- Bundling and promotions: Temporary price promotions can artificially inflate XED values, suggesting stronger substitution than exists in the long term.
- Multiple substitutes: When several close substitutes exist, the measured XED for any single pair may under‑state the true competitive pressure.
- Threshold effects: Small price changes may not trigger a response, whereas larger changes do, leading to non‑linear XED that a single coefficient cannot capture.
Therefore, analysts should interpret XED alongside qualitative insights into consumer behaviour and market trends.