Substitutes are two goods where the demand increases for one when the price of the other increases. Substitution to low-energy intensive means of transportation is one of the benefits of high gas prices:
Sales of new bikes rose 9% in the first quarter of this year, compared with the same period in 2010, and sales of road bikes — commonly used in commuting — jumped 29%, says Scott Jaeger, senior retail analyst with Leisure Trends Group, a Boulder, Colo.-based retail tracking firm.
Sales of gas-powered scooters are up even more: nearly 50% in the first quarter compared with a year ago, says the Motorcycle Industry Council, a trade group.
"We see spikes when fuel prices rise," says Ty van Hooydonk, the group's spokesman, noting many scooters average 60 to 80 miles per gallon. ...
"It's too early to say definitively that bike sales are up because of gas prices," says Tim Blumenthal, president of Peopleforbikes.org. He expects gas prices to escalate more and take bike sales along with them.
Also driving bike use is the boom in bike trails and bike-sharing programs, Blumenthal says, adding the federal government has made an "unprecedented" $2 billion investment in trails in the last two years.
If gas prices have risen by 12.5% during the first quarter of 2011, then the cross price elasticities of road bikes and gas-powered scooters are 2 and 4 (with rounding). These estimates are upper bounds since they ignore the effects of complements, bike trails, and institutional change, bike-sharing programs. Anticipating the criticism, analysis of these important factors must wait until someone assembles the data, estimates the model and writes the paper.