Examine the likely numerical value of the cross elasticity of demand between UK online streaming services

Edexcel A-Level Economics Paper 1 June 2023 Extract

With reference to the information provided, examine the likely numerical value of the cross elasticity of demand between UK online streaming services. (8 marks)

Cross elasticity of demand (XED) is the percentage change in the demand of a good, by the percentage change in the price of another good. The XED for UK online streaming services is very likely to be positive. For example, it could be a number close to 1. The various online streaming services act as substitutes for each other. This means that an increase in the price of one service leads to a contraction in demand for that given service. Therefore, consumers look for alternatives and the demand for a substitute is likely to increase. The extract mentions that 'Netflix subscribers have also quoted a decline in value for money', which means that their customers are looking for better alternatives.

However, whether XED is between 0 and 1, or actually greater than 1 depends on whether the two services are weak substitutes or close substitutes. Some consumers may have started tv shows that they really enjoy on one streaming service and would be unlikely to move to another streaming service despite a price increase. 

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