Why is cross-price elasticity of demand useful to a firm accused of being a monopolist?
The cross-price elasticity of demand function is a measure of how close substitutes impact consumer demand. In other words, two products with a high cross-price elasticity of demand will see their demand curves move inversely with each other; as the price of X goes up consumers will consume more of Y. An accused monopolist could cite the high cross-price elasticity of demand as proof that since close substitutes exist for its product the accused firm doesn’t have a monopoly position in that market.
