Uses of XED

Question 1

Pricing for substitutes

Answer 1

if a competitor cuts the price of a rival product firms use estimates of XED to predict the effect on D and total revenue of their own product

Question 2

Brand and XED

Answer 2

when consumers become habitual, purchases of a product, the XED against rival products will decrease. This makes D less sensitive to price The result is that firms may be able to change a higher price, increase their total revenue and achieve higher profits

Question 3

Identification of Markets

Answer 3

Knowing the XED of its own- and other related products, enables the firm to map out its market. Mapping allows a firm to calculate how many rivals it has and how close they are. It also allows the firm to measure how important complementary products are to its own products. This knowledge allows the firm to develop strategies to reduce its exposure to the risks associated with price changes by other firms.

Question 4

Identification of Markets

Answer 4

Knowing the XED of its own- and other related products, enables the firm to map out its market. Mapping allows a firm to calculate how many rivals it has and how close they are. It also allows the firm to measure how important complementary products are to its own products. This knowledge allows the firm to develop strategies to reduce its exposure to the risks associated with price changes by other firms.