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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.

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