The special demand structure that induces a firm to use a cross-subsidization strategy is: A

Economics Dec 18, 2020

The special demand structure that induces a firm to use a cross-subsidization strategy is:

A. perfect substitution among products.

B. imperfect substitution among products.

C. independent demand for products.

D. interdependent demand for products.

Expert Solution

B. Cross-subsidization is only potentially profitable when the two products are imperfect substitution. If they were perfect substitutes, consumers will all switch to the product with lower, subsidized price, and firm will loose revenue.

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