Joint demand

According to Dictionary of International Economics Terms joint demand is "a demand for two or more goods or services that are used together (such as cars and tyres). As a result, a change in the demand for one causes a change in the demand for the other" (J.O.E. Clark 2006, p. 158).

Demand for some products (especially raw materials and components) is subject to a phenomenon known as joint demand. The phenomenon of common demand occurs when at least two items are used jointly (in combination) to produce a product. A good example of this is the company that produces the axes. The company will need an equal number of ax holders and ax blades; these two components are therefore required together. In the absence of ax holders, the manufacturer buys less ax blades. Understanding the effects of common demand is very important for a marketer who sells many commonly required items. Such a marketer is aware that when a customer begins to buy one of the commonly required items, there is a good opportunity to sell related products (W.M. Pride, O.C. Ferrell 2014, p. 257).

Other, most common examples of joint demand may be for example:

• cars and fuel;
• glasses and frames;
• doors and door handles;
• lamps and bulbs;
• mobile phone and telephone subscription.

Joint demand and joint supply

The concept of joint demand has already been explained and it is closely related to the joint supply. The joint supply is "a situation in which two or more goods are produced together using the same supply. A change in the production of one good results in a change in the production of another (but only if their proportions can be varied)" (J.O.E. Clark 2006, p. 159).

Neumann used the following example to explain the relationship between joint demand and joint supply. If, before the spread of lifts, city apartments had a lower price, the higher they were, then, according to Neumann, this would be an exception to the rule that prices must correspond to production costs. He believed that the production costs were higher for the upper floors, because during their construction the material must be moved to a greater height, and the weight of these floors means that the load-bearing walls must be thicker than otherwise. But it is also obvious that in addition to floors, walls and ceiling, the house must have a land on which it will stand, and a roof to cover it - of which the first is usually very expensive to buy. These costs or interest on them should be spread over the rent for all apartments, and it is not possible to determine in advance which rule should be used. As has already been shown in the above case, the rental of various apartments is simply regulated by demand, that is, mainly by the appropriate comfort required by buyers, and suitability for various purposes; or as a last resort according to their extreme utility (B. Sandelin 1998, p. 84).

Examples of Joint demand

• Car and Tyres: Car and tyres are a classic example of joint demand, as the demand for one is directly linked to the demand for the other. As the demand for cars rises, the demand for tyres will also rise, as each car requires tyres.
• Movie tickets and Popcorn: Movie tickets and popcorn are also a good example of joint demand. As the demand for movie tickets increases, the demand for popcorn is likely to increase as well, as many moviegoers opt to buy popcorn while they’re at the theater.
• Smartphones and Data Plans: Smartphones and data plans are another example of joint demand. As the demand for smartphones rises, the demand for data plans is likely to rise as well, as the majority of smartphone users need a data plan in order to use their device.
• Hotels and Tourism: Hotels and tourism are another example of joint demand. As the demand for tourism rises, the demand for hotel rooms is likely to increase as well, as tourists will need a place to stay during their trip.

Advantages of Joint demand

Joint demand presents many advantages in the market. These include:

• Increased efficiency in production and delivery, as both goods or services can be produced and delivered together, reducing costs and time.
• Increased sales potential, as the demand for one good or service may increase the demand for the other.
• Increased economies of scale, as the production and delivery of both goods or services can be done together, thus reducing costs.
• Increased customer loyalty, as customers may become loyal to the provider due to the convenience of obtaining both goods or services from the same provider.
• Increased market share, as customers may be more likely to purchase both goods or services from the same provider, thus increasing the provider’s market share.

Limitations of Joint demand

Joint demand can present a range of limitations in economic analysis. These include:

• Difficulty in quantifying the separate demand of each good when they are used together. This can make it hard to precisely measure the total demand for the goods and calculate their individual prices.
• Joint demand can be difficult to forecast as it depends on the demand for both goods, so changes in the demand for one will affect the demand for the other.
• Joint demand does not take into account the possibility of substitutes for the two goods, which can lead to inaccurate analysis.
• It can be difficult to separate the demand for the two goods when they are used together, leading to a lack of clarity in the analysis.

Other approaches related to Joint demand

An introduction to the other approaches related to joint demand is that joint demand is a phenomenon that occurs when the demand for two or more goods or services is linked. There are a number of other approaches that can be used to understand how joint demand works. These include:

• The substitution effect: This is the idea that when the price of one good increases, demand for the other good in the pair increases as consumers substitute the more expensive good for the cheaper one.
• The income effect: This is the idea that when the price of one good increases, demand for the other good in the pair decreases as consumers have less money to spend on the other good due to the increased cost of the first.
• The complementarity effect: This is the idea that when the price of one good increases, demand for the other good in the pair increases as the increased cost of the first good makes the second good seem more attractive.

In summary, joint demand is a phenomenon that occurs when the demand for two or more goods or services is linked, and there are a number of other approaches that can be used to understand how joint demand works, such as the substitution effect, the income effect, and the complementarity effect.

Joint demand — recommended articles

Trade allowance — Purchase price variance — Joint Supply — Prestige products — Monopson — Optional product pricing — Gross price — Economic obsolescence — Discriminatory pricing

References

• Clark J.O.E. (2006), Dictionary of International Economics Terms, Loupe Solutions, London, p. 158-159
• Palgrave R.H.I (2015), Dictionary of Political Economy, Tom 3, Cambridge University Printing House, Cambridge, p. 494
• Pride W.M., Ferrell O.C. (2014), Marketing 2014, South-Western Cengage Learning, Mason, p. 257
• Sandelin B. (1998), Swedish Economics, Tom 2, George Routledge and Sons Ltd., London, p. 83-86
• Tribe J. (2011), The Economics of Recreation, Leisure and Tourism, Butterworth-Heinemann is an imprint of Elsevier, Waltham, p. 56

Author: Patrycja Czerwiec