Abstract

http://ssrn.com/abstract=1617337
 


 



Demand Cross Elasticity Without Substitutability: Evidence from an Experiment


Luigi Luini


University of Siena - Department of Economics

Pierluigi Sabbatini


Government of the Italian Republic (Italy) - Italian Competition Authority

May 27, 2010


Abstract:     
We study a market where goods are produced under low marginal costs with a poor degree of substitutability among products. In such an environment we ran an experiment in order to explain why prices are interdependent even when preferences are independent. We compare our results to previous theoretical and laboratory experimental literature on price fairness. We find that, even in absence of interaction among subjects, price fairness/unfairness do play a major role in accepting/rejecting a deal. Subjects tend to be more resistant to a price increase and reject a deal when the favourite product is not anchored to price increases of not substitutable products, if these products are considered to be a benchmark for fair conduct. Therefore demand cross elasticity can arise also between products which are not substitutes. This result has an important implication for the delineation of an antitrust market. Due to fairness concerns, in the markets that we consider products which are not interchangeable should be included in the relevant market.

Number of Pages in PDF File: 26

Keywords: Price Reference, Anchoring Heuristic, Unfairness, Relevant Market

JEL Classification: C93, D12, K21

working papers series


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Date posted: May 29, 2010  

Suggested Citation

Luini , Luigi and Sabbatini, Pierluigi, Demand Cross Elasticity Without Substitutability: Evidence from an Experiment (May 27, 2010). Available at SSRN: http://ssrn.com/abstract=1617337 or http://dx.doi.org/10.2139/ssrn.1617337

Contact Information

Luigi Luini
University of Siena - Department of Economics ( email )
Piazza S. Francesco, 7
Siena, I-53100
Italy
Pierluigi Sabbatini (Contact Author)
Government of the Italian Republic (Italy) - Italian Competition Authority ( email )
Piazza Verdi 6/a
00187 Roma, 00198
Italy
0039 0685821369 (Phone)
0039 0685452369 (Fax)
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