Abstract and Keywords
Demand models are essential for analytical pricing. They predict how a firm's pricing actions will influence demand for its products and services, which in turn determines revenues and profits. This article reviews the most important demand models used in pricing practice, and surveys approaches to estimating these models. The most widely used models of demand assume customers are rational decision-makers who intelligently alter when, what, and how much to purchase to achieve the best possible outcome for themselves. Because demand results from many individuals making choice decisions – choices to buy one firm's products over another, to wait or not to buy at all, to buy more or fewer units, etc. – the article begins by looking at models of individual-choice behaviour. When added up, these individual purchase decisions determine aggregate demand, so aggregate-demand functions and their properties are examined next. Finally, the article surveys how such models can be estimated from data.
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