Business Analysis with Microsoft® Excel, Second Edition

Estimating the Effect of Cross-Elasticity

When a company introduces a new product, it is likely that the product will compete to some degree with products that it already produces and sells. This is termed cross-elasticity: the tendency of similar products to draw sales from one another, instead of expanding market penetration, due to the fact that the products function in similar ways.

There are many reasons that a company might want or need to introduce a new product. It might be necessary to do so because its customers demand it, because technological advances make the new product feasible, to maintain the marketplace's perception of the company, or—most typically—because the competition has introduced its own version.

If the new product is ...