C4_1

The cross-price elasticity of demand measures the degree to which products substitute for each other. When this is positive, it indicates that consumers increase their purchases of good Y as the price of good X increases. Goods X and Y would thus be substitutes.

We can see that none of the brands apart from Ariel and Día changed its prices during the three weeks. We will analyze the situation from both points of view, Ariel and Día.

ARIEL

In week 3, the price of Ariel is again the one in week 1, after the decrease of 20 units in week 2. We can see that when the price of Ariel decreased that week, the quantity raised from 100 to 140, but these sales do not come from Día, because its price did not change and nor the sales (p=60; q=100). The new sales of Ariel came from all the other brands, but not in the same level.

• ·      Continente sales decreased from 95 to 74, that is a difference of 11 units of quantity.
• ·      Wipp sales decreased from 90 to 80, that is a difference of 10 units of quantity.
• ·      Dixan presents a difference of 5 units, Luzil a difference of 3 units and Colon a difference of 1 unit.

Once the price is again the same in week 3 (100), we can see that Continente’s quantity increased again until its very first place (95), so that it seems that Continente is a competitor of Ariel, because the price changing of Ariel changes the sales of Continente.

Regarding Colon and Luzil, we can see that in week 3 do not increase their sales, but they decrease. This means that they are not competitors of Ariel, because they should have increased their sales with the increase of the price of Ariel, but they did not.

In week 3, both Dixan’s sales and Wipp’s sales increase again, but only 0,7 units and 5,5 units; so that the relation is not that clear such as the case of Continente. However, they may be competitors of Ariel, but they are not the main ones.

DÍA

On the contrary of Ariel, Día changed its price in week 3 with a decrease from 60 to 48. In the previous weeks, the sales were constant, but in the last week, because of the decrease of its prices and probably other aspects, the sales increased from 100 to 122,15 units. Where do the new sales come from? In this case, the competitors are going to be the ones that, with this decreasing of the price, have lost a lot of sales because the customers see these products as substitutes.

If we take a look to Continente, we can see that in this period they have sold 11 units more than in the week 2 (from 74 to 95 units). Moreover, we have discovered that this brand seems like it is a competitor to Ariel. We can see that the sales have not decreased, but they have increased, so that this means that Continente is not a competitor of Día.

We can say the same of Dixan and Wipp, because they have increased their sales in this week 3, not as much as Continente, but also some. Thus, it cannot be said that they are competitors of Día, because they should have decreased their sales with the increasing price of Día in order to be clear competitors.

Colon and Luzil are different cases, because their sales have decreased in week 3 in contrast to week 2. Although the sales’ decrease is not very relevant (2,95 Colon and 1,4 Luzil), this means that if Día in a future decides to increase the price again, these brands may increase their sales, so they can be seen as potential competitors.

SUMMARY

We can see that the main competitor of Ariel is Continente, but it has more that are not that relevant, such as Dixan and Wipp. However, we can see that Colon and Luzil and moving in a different place of the market, because the decisions among them do not affect them. Let us see if this is what happens with the numeric results, taking into consideration the next formula:

 =

In this case, we can see with the formula that Ariel and Continente are competitors, because the result of the formula is positive. The change of price (the denominator in the equation) does not change with the other companies. This means that every change of quantity that is negative is going to make this result negative, because the numerator will be negative and the whole result will be also negative. This is what happens with Luzil and Colon, because the change of the quantity is lower in the week 3 than in the week 2.

Related to Día, in contrast, we mention that decisions between Día and Continente have nothing to do between them, so they are not main competitors. The not relevant competitors of Ariel, Dixan and Wipp, have also nothing to do with Día, because they are moving in different parts of the market. However, Colon and Luzil (not competitors of Ariel) are the potential competitors of Día, although not in a very relevant way.

Again, taking into account the numeric result, we can see that:

 =

Taking into consideration the quantity changes of Luzil and the price change of Día (this time the other way around so that it can be positive, because this is a decrease of the price and not an increase), we can see that again it is positive, so this means that Luzil is a competitor of Día. It is going to happen the same, but this time the brands that have less quantity in week 3 are going to be the ones that are competitors, because Día has not increased its price, but decreased it.

It really seems that Ariel moves in the market in a competitive way because of the prices and the movements of other competitors’ numbers, but that Día moves in the market with a competitive advantage of low prices. Although it has competitors, they are not as clear as the ones of Ariel, so that it seems that Día is in the market “on its own”.