Usefulness of XED na

Firms
1. Substitutes: XED>0
  1. E.g XED >1 : Close substitutes
    1. 1) Pricing strategy
      1. E.g competitors ↓ price to ↑ sales, businessman follow suits & ↓ price
      2. Keep an eye on pricing policy of competitors
    2. 2) Marketing strategies
      1. Offering specialised services. E.g free gifts
      2. Product differentiation
        E.g Brand loyalty through aggressive advertising
      3. Efficient Services
        E.g Faster packaging services
      4. To ↓ XED → ↓ vulnerability to competitors' promotion
2. Complements: XED < 0
  1. E.g XED <-1 : Strong complements
    1. Estimate the Δ in P of a complement will have on their TR
      1. E.g ↓ price of Car will result in a large ↑ in dd for Car accessories
    2. Adjust price & output
      1. E.g price of a closely related good ↓, businessman ↑ price of his product w/o ↓ in TR
      2. E.g Car accessories firms will ↑ SS with a ↓ in price of car
    3. Package 2 complementary goods together
      1. E.g Car retailer offers free UV protection Window Films
3. Help firms identify its close substitutes and complements
Govt
1. Effects on Taxes
  1. E.g XED negative & high: close complements
    1. E.g fuel vs private cars
      1. Access how much in ↑ fuel price will result in desired ↓ in DD for private transport
2. Effectiveness of Subsidies
  1. E.g XED positive & high: close subsitites
    1. E.g private cars vs public transport during non-peak hours
      1. ↑ subsidies on public transport, ↓ C of private cars
  2. E.g XED negative & high: close complements
    1. E.g Sporting lifestyle vs sports training
      1. ↑ DD for sports, ↓ price of sports training
        e.g ActiveSg

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Usefulness of XED na

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	Created by Jia Jun Neo about 6 years ago