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Should you raise or lower the prices for two goods, one of which you acquired via...

Should you raise or lower the prices for two goods, one of which you acquired via a merger, based on whether they are complements or substitutes.

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Answer #1

A fall in the price of a substitute will result in increase in its quantity demanded and reduction in the demand for the other good. Rise in price of a substitute will have opposite effect. Therefore if the two goods are substitute, nothing more can be done to increase the revenue because while revenue will increase for one product it will be reduced for the other depending upon the elasticity.

In case the two products are complements, reduction in price of one good will increase its quantity demanded and will also increase the demand for the other good. If we believe that the elasticity is greater than 1, a reduction in price will increase revenue for both.

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