Conceptual Structure of Demand Model

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Presentation transcript:

Conceptual Structure of Demand Model Firm Demand = Total Industry Demand * Market Share Define Market Share = Firm Demand / Total Industry Demand Market Share = Firm Demand / (Avg. Demand * Number of Firms) Market Share = Relative Demand / Number of Firms Firm Demand = Total Industry Demand * (Relative Demand / N) Macro-economic Influences Seasonal Patterns Stage of Life Cycle Exogenous Demand TID RD/N Industry Activity Pricing, Promotion, Quality Endogenous Demand FD Competitive Profile Relative Pricing, Promotion, Quality, and Loyalty Relative Demand

Total Industry Demand TID Exogenous Demand Endogenous Demand Macro-Economic Influences - Seasonality - Stage of Life Cycle Estimate Trend and Seasonality using Time Series Analysis Industry Behavior - Pricing (Avg Price) - Promotion (Avg. Advertising) - Product Quality (Avg. R&D) Estimate weights of these factors using Regression Analysis

Relative Demand (Measure of Market Share) RD Quality Promotion Pricing Loyalty Relative Price (PREL) Relative R&D RD1 (t-1) Relative Advertising RD is firm specific and a measure of market share, the predictor variables should also be relative to industry averages. For example, relative price of the firm is PREL = Firm’s Price / Industry Avg. Price

A DSS for Estimating Demand