Cross price elasticity (XED) measures the responsiveness of demand for good X following a change in the price of a related good Y.
We are looking here at the effect that changes in relative prices within a market have on the pattern of demand. With cross elasticity we make an important distinction between substitute and complementary products.
Another example is the cross price elasticity of demand for music. Sales of digital music downloads have been soaring with the growth of broadband and falling prices for downloads. As a result, sales of music CDs have fallen sharply.
Pricing for substitutes:
Pricing for complementary goods:
Brand and cross price elasticity
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