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Enhancing the Teaching of Product Substitutes/Complements: A Pedagogical Note on Diversion Ratios

Author

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  • Capps, Oral Jr.
  • Dharmasena, Senarath

Abstract

Application of diversion ratios in demand analysis has received little attention. Even microeconomic textbooks typically do not address this topic. The literature review presented here shows use of diversion ratios, along with cross-price elasticities, to study the price effects associated with mergers and acquisitions, a practice recommended to measure product substitutability/complementarity. With the aim of expanding experiential learning in the fields of applied economics, agricultural economics, and agribusiness, this article demonstrates how diversion ratios can be calculated from any uncompensated own-price and cross-price elasticity matrix derived from the analysis of demand systems, and it discusses the teaching of this concept in the classroom.

Suggested Citation

  • Capps, Oral Jr. & Dharmasena, Senarath, 2019. "Enhancing the Teaching of Product Substitutes/Complements: A Pedagogical Note on Diversion Ratios," Applied Economics Teaching Resources (AETR), Agricultural and Applied Economics Association, vol. 1(1), June.
    • Handle: RePEc:ags:aaeatr:294013
    DOI: 10.22004/ag.econ.294013
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    Cited by:

    1. Lee, Yinjin & Bateman, Alexis, 2021. "The competitiveness of fair trade and organic versus conventional coffee based on consumer panel data," Ecological Economics, Elsevier, vol. 184(C).
    2. Shawn W Ulrick & Mark D Williams, 2024. "“Multi-Product Critical Loss: Allowing for Varying Margins, Prices, and Quantities in the Candidate Antitrust Market”," Journal of Competition Law and Economics, Oxford University Press, vol. 20(1-2), pages 60-84.
    3. Hu, Yang & Dharmasena, Senarath & Capps, Oral Jr. & Janakiraman, Ramkumar, . "The Growing Market for Energy and Sports Drinks in the United States: Can Chocolate Milk Remain a Contender?," Journal of Food Distribution Research, Food Distribution Research Society, vol. 51(2).

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