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I’m performing some exercises in order to get the optimal price of some product such a potato chips, biscuits, drinks, etc. But I’ve found that some of them have positive elasticities. This can makes sense for me, as if some biscuits brand is not so successful (in sales), price can decrease in order to be more attractive. But under this scenario, how can I establish an optimal price? I’m using a log-log model to obtain elasticities. Also, at this scenario can I take into account cross-elasticities? By example, how can biscuits influence (cannibalise) chips’ sales?

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  • $\begingroup$ I find the question a bit unclear ... Are you talking about the elasticity of demand with respect to price or perhaps elasticity of supply with respect to price? $\endgroup$ May 2 at 21:43
  • $\begingroup$ Sorry, my bad. I’m talking about elasticity of demand $\endgroup$
    – Red Noise
    May 2 at 21:45
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    $\begingroup$ You can assume a constant elasticity demand function and set the price using monopoly theory. But offcourse if the market structure is perfect competition this is a really bad idea. So the moral is you have to consider market structure, which in practise as a minimum involves considering how potential competitors will react to your price strategy. $\endgroup$ May 2 at 22:07
  • $\begingroup$ And if I’m considering two products of the same portfolio? I mean, suppose that biscuits as well as chips are from the same manufacturer, and I wanna understand the optimal gap of price for both (trying to avoid a loss in any of them), based on elasticities. (For example, if my chips cost 8 and my cookies cost 10, how much can I decrease the price of my cookies without affecting my chips) should I make the assumption of constant elasticity of demand for my chips, and just take into account the cross elasticity of my cookies? $\endgroup$
    – Red Noise
    May 2 at 22:18