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Supply, demand, and elasticity
Published in Bijan Vasigh, Ken Fleming, Thomas Tacker, Introduction to Air Transport Economics, 2018
Bijan Vasigh, Ken Fleming, Thomas Tacker
If the cross-price elasticity of demand is found to be less than zero, then the related firm’s product is determined to be a complementary good. A complementary good is a good that increases the demand for the firm’s good. Examples of complementary goods to the airline industry are hotels and rental cars, as the price of accommodation and transportation directly relate to the demand for air transportation. As an example, if the cross-price elasticity of demand was found to be −0.55, then a 1 percent increase in the complementary good’s price would create a 0.55 percent decrease in the quantity demanded. As in the case of own-price elasticity, cross-price elasticity can be categorized into one of three groups based on its numerical value and its impact of a related firm’s price on demand:
Market Demand Analysis and Demand and Supply for Airline Services
Published in Bijan Vasigh, Ken Fleming, Thomas Tacker, Introduction to Air Transport Economics, 2018
Bijan Vasigh, Ken Fleming, Thomas Tacker
If the cross-price elasticity of demand is found to be less than zero, then the related firm’s product is determined to be a complementary good. A complementary good is one which increases the demand for the firm’s good. Examples of complementary goods to the airline industry are both hotels and rental cars, as the price of accommodation and transportation directly relate to the demand for air transportation. As an example, if the cross-price elasticity of demand was found to be -0.55, then a 1 per cent increase in the complementary good’s price would create a 0.55 per cent decrease in the quantity demanded. As in the case of own-price elasticity, cross-price elasticity can be categorized into one of three groups based on its numerical value and the impact of a related firm’s price on demand: EX,Y > 0 Substitute EX,Y < 0 Complement EX,Y = 0 Independent
The Main Models of Value-Based Management and Their Application to Empirical Studies
Published in Walter Amedzro St-Hilaire, Value-Based Management in an Open Economy, 2023
Hotteling (1929) studies the stability of competition. In traditional oligopoly models, it is argued that when a firm raises the price of its product relative to its competitors, it allows all of its customers to be lost to them because the goods are homogeneous. However, given the spatial or product differentiation, when a firm increases its price, it will gradually lose its customer base and not instantly as found in the theoretical literature. Indeed, a certain number of consumers will remain loyal to it because of a certain number of reasons not necessarily related to the product. Hotteling (1929) points out that once the quantities sold are considered as a continuous function of the difference in prices, the hypothesis of instability that prevails in the model of Cournot, Amoroso, and Edgeworth. He thus supports the theory of horizontal differentiation by proving that transport costs or differentiation in the product itself (taste, shape, color, etc.), contribute to the stability of competition and therefore to monopolistic competition. Spence (1976) studied the effects of fixed costs and monopolistic competition on the selection of products and product characteristics in a set of interconnected markets. Fixed costs contribute to imperfect competition in markets and are a source of non-price competition. Furthermore, they restrict the number and variety of products that are feasible or desirable to offer. Thus, the products that are designed will be those that generate sufficient revenues to cover both fixed and variable costs. He studies the effect of monopolistic competition on complementary products. He finds that monopolistic competition tends to reduce the supply of complementary products. The reason is that when firms in such a market maintain quantities and raise the price of their products above marginal cost, the demand for complementary goods decreases.
Optimal design of healthcare services after the separation of prescribing and dispensing
Published in International Journal of Production Research, 2022
Xiuxian Wang, Na Geng, Shan Jiang, Liping Zhou, Zhibin Jiang
We further review relevant literature on complementary goods pricing. The concept of complementary goods arises when customers need to buy more than one product to obtain the full utility (Yue, Mukhopadhyay, and Zhu 2006). The markets for such goods are interlinked since the demand for one product could affect that for the other (Wei, Zhao, and Li 2013). Gabszewicz, Sonnac, and Wauthy (2001) consider a duopoly with two separate firms each selling an indivisible product. They find that the equilibrium prices are related to the degree of complementarity between two products. Thereafter, Mukhopadhyay, Yue, and Zhu (2011) consider the impact of the market power structure on the pricing decisions, and demonstrate how information-sharing would benefit the leader firm in a leader–follower market situation. Wei, Zhao, and Li (2013) extend their consideration to five different market power structures among channel members, and also include a retailer in the supply chain. Besides, Wang (2006) considers the joint pricing-production decision for completely complementary goods provided by different firms under uncertain demands. In all the above literature, the researchers consider entity goods of which the complementarity is expressed by cross-price sensitivity (which differs based on the scenarios). However, our paper considers complementary pricing strategies in a new context with both goods suppliers and service providers. In the service system under our examination, the service and the supply are completely complementary to each other to complete a certain service. The inclusion of the service provider and its operational decisions makes the pricing decisions totally different.
Exploring the motivational factors on continuous usage intention of smartwatches among actual users
Published in Behaviour & Information Technology, 2018
In the literature, complementary goods are defined as additional goods and services that enhance or enable the value of another product (Schilling 2005). For instance, the value of a video game console is directly related to the availability of complementary goods (e.g. video games) and services (e.g. online gaming). From the consumer point of view, many products are only functional or usable when there is a set of complementary goods available for them (e.g. apps for smartphones). Some companies make both a good and its complements, whereas others depend on other companies to provide complementary goods or services for their products (Schilling 2005). The smartwatch users commented: Works with a bunch of my apps but (though you’ll have to pay for most of them). I just recently added apply pay for my Kohl's charge as well as my check and charge cards as well. Really works!. (Apple watch- series1)The downside is that the apps for the watch are lacking. You would think that there would be plenty of good apps for the 3rd generation of a smartwatch but apparently, the Tizen system does not bring in quality programmers. I have downloaded a handful of apps and they are either worthless or if good. (Samsung Gear s2)There are a good amount of applications, though the quality of some may be lacking. Samsung has provided an extensive SDK for application development, of which I plan to create my own apps. For instance, Spotify for S3 frees you up from using your phone … ”. (Samsung Gear s3)As it can be derived from the posts, complementary goods for smartwatches are the applications (apps) that can facilitate usage of smartwatches and make them valuable for consumers. Specific attention should be devoted by producers of these applications with respect to quality and the width of offering. For example, the application called V provides the information in a straightforward manner, it uses voice search to discover a place, bookmark it with 3D touch and thus, users can pick up their phone later.