Cross Price Elasticity Calculator
Analyze relationship between product prices and demand for substitute or complementary goods
Calculate Cross Price Elasticity
The product whose price will change
The product whose demand will be measured
Initial Values (Time Point 1)
Final Values (Time Point 2)
Cross Price Elasticity Results
Product A Price Change
$0.00 → $0.00
+$0.00 (+0.0%)
Product B Demand Change
0 units → 0 units
+0 units (+0.0%)
Formula: E = (P₁ + P₂)/(Q₁ + Q₂) × ΔQ/ΔP
Alternative: E = % Change in Quantity B / % Change in Price A = 0.0% / 0.0% = 0.000
Interpretation: Changes in price of one product do not affect demand for the other
Example: Coca-Cola vs Pepsi Analysis
Market Scenario
Product A: Coca-Cola
Initial Price: $0.69 per can
Final Price: $0.59 per can
Price Change: -$0.10 (-14.5%)
Product B: Pepsi
Initial Demand: 680 million cans
Final Demand: 600 million cans
Demand Change: -80 million (-11.8%)
Calculation
Step 1: Average Price = ($0.69 + $0.59) / 2 = $0.64
Step 2: Average Quantity = (680M + 600M) / 2 = 640M
Step 3: Elasticity = ($0.64 / 640M) × (-80M / -$0.10) = 0.8
Result: Positive elasticity = Substitute goods (weak substitutes)
Elasticity Interpretation
Substitute Goods
Positive elasticity
Price ↑ → Demand for other ↑
Complementary Goods
Negative elasticity
Price ↑ → Demand for other ↓
Independent Goods
Zero elasticity
No relationship
Elasticity Magnitude
|E| > 1: Elastic
Strong responsive relationship
|E| < 1: Inelastic
Weak responsive relationship
|E| = 1: Unit Elastic
Proportional response
Business Applications
Pricing strategy development
Market competition analysis
Product bundling decisions
Demand forecasting
Understanding Cross Price Elasticity
What is Cross Price Elasticity?
Cross price elasticity of demand measures how responsive the quantity demanded of one good is to changes in the price of another good. It reveals the relationship between products and helps businesses understand market dynamics and consumer behavior.
Why is it Important?
- •Identifies substitute and complementary relationships
- •Guides pricing strategies and market positioning
- •Predicts market response to competitor actions
- •Supports product bundling and portfolio decisions
Formula Breakdown
E = (P₁ + P₂)/(Q₁ + Q₂) × ΔQ/ΔP
Mid-point method
- E: Cross price elasticity coefficient
- P₁, P₂: Initial and final prices of product A
- Q₁, Q₂: Initial and final quantities of product B
- ΔP: Change in price of product A
- ΔQ: Change in quantity of product B
Alternative Formula: % Change in Quantity B ÷ % Change in Price A
Real-World Examples
Substitute Goods
Positive elasticity
- • Coca-Cola vs Pepsi
- • iPhone vs Samsung
- • Butter vs Margarine
- • Netflix vs Hulu
Complementary Goods
Negative elasticity
- • Coffee machines & capsules
- • Printers & ink cartridges
- • Cars & gasoline
- • Gaming consoles & games
Independent Goods
Zero elasticity
- • Books & bicycles
- • Shoes & smartphones
- • Bread & furniture
- • Movies & vitamins