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Figure 2: Graphical example of substitute goods. The relationship between demand schedules determines whether goods are classified as substitutes or complements. The cross-price elasticity of demand shows the relationship between two goods, it captures the responsiveness of the quantity demanded of one good to a change in price of another good. [5]
Price-performance trade off – if the substitute offers an attractive trade off between price and performance in relation to the industry product. The better the relative value of the substitute the stronger the negative impact it will have on profitability [4] [7] Buyers propensity to substitute – how willing the consumer is to use a ...
When an increase in output by one firm raises the marginal revenues of the other firms, production decisions are strategic complements. When an increase in output by one firm lowers the marginal revenues of the other firms, production decisions are strategic substitutes. A supermodular utility function is often related to complementary goods ...
Changes in the prices of related goods (substitutes and complements) Changes in disposable income, the magnitude of the shift also being related to the income elasticity of demand. Changes in tastes and preferences. Tastes and preferences are assumed to be fixed in the short-run. This assumption of fixed preferences is a necessary condition for ...
Examples of substitutes are meat, poultry, and fish; landlines and cellular telephones; airlines, automobiles, trains, and ships; beer and wine; and so on. For example, tap water is a substitute for Coke, but Pepsi is a product that uses the same technology (albeit different ingredients) to compete head-to-head with Coke, so it is not a substitute.
In auction theory and competitive equilibrium theory, a valuation function is said to have the gross substitutes (GS) property if for all pairs of commodities: () (). I.e., the definition includes both substitute goods and independent goods , and only rules out complementary goods .
This tends to be the case if there are sufficiently strong aggregate increasing returns to scale and/or the demand curves for the firms' products have a sufficiently low own-price elasticity. On the other hand, the production decisions are strategic substitutes if an increase in one firm's output decreases the marginal revenues of the others ...
Price of related goods: The principal related goods are complements and substitutes. A complement is a good that is used with the primary good. Examples include hotdogs and mustard, beer and pretzels, automobiles and gasoline. (Perfect complements behave as a single good.) If the price of the complement goes up, the quantity demanded of the ...