Substitutes and Complements

Characteristics

Current situation

Future trend

Availability of close substitutes

Yes, specialized confectionaries, ice cream shops, premier clubs and bars etc. and shows (theatres, musicals and the like).¹

As the time passes by more substitutes would be available (but they would be fleeting phenomenons), and the closest substitutes are likely to remain the same – bars, specialized eating enterprises etc. and shows.

Price-value characteristics of substitutes

For confectionaries and other specialized eating enterprises the average costs would be lower, but the prices for attending really popular shows (for example, some really famous spectacles at the Mariinskiy theater) could be no less than eating at one the premier restaurants. However, the value generated by the substitutes is more or less equal to the value of eating at a premier restaurant. The value is strongly influenced by the people with whom you spend your time.

In the future the price-value characteristics of the substitutes would change very little in comparison with today’s situation.

Price elasticity of industry demand

As with the premier restaurants, people consume the substitutes only for some special occasions or at least they really enjoy it a lot, thus the price elasticity is low. But it is also worth to notice that at certain price threshold the price becomes very inelastic because many people may find it unreasonable to consume it any longer and instead consume something else. Also the brand loyalty plays an important role in inelasticity of prices. The more consumers are affluent the more the prices are inelastic.

As more people get better in the financial terms then the elasticity for substitutes would become higher because people would find the premier restaurants more affordable, and therefor spend their money there than on substitutes. Or the substitutes could become complimentary goods, for example, people would not only eat at the restaurants, but also go to the shows immediately afterward.

Availability of close complements

There are pretty many complimentary goods available out there. These are usually the extra activities that go well with a wonderful evening spent at a premier restaurant – private museums excursions, night boat tours on the Neva river, horse rides in a park etc.

The same situation as with substitutes – more complimentary goods would be available, but the classics would dominate consumer preferences – boat tours, horse rides etc.

Price-value characteristics of close complements

Some complimentary goods bring very high emotional value and cost correspondingly high – a gorgeous spectacle of the Bolshoi ballet troupe, private museum tours etc. But a lush bouquet of flowers, a lovely walk in the downtown, watching sunrise are also very emotionally rich experiences, but they cost a lot less in ruble terms. Actually, it all boils down to budget constraints and personal preferences.

The price-value characteristics of the complimentary goods would remain constant in the future just as they have done so for many centuries ago (a lush bouquet of roses, for example, meant a lot 100 years ago and it has the same emotional value today).