Methods of Estimating Demand

Abstract

LACK of knowledge of demand curves for particular commodities has been a troublesome problem for marketing practitioners and economists. Some economists have felt that microeconomic price theory under conditions of monopolistic competition is of limited usefulness because it is based on a false assumption of sellers' knowledge of average revenue curves. On the other side, many marketing men have summarily dismissed the teachings of economists on the grounds that the necessary information is not available. It may be largely for this reason that most business firms report their pricing policies as quite different from those indicated in economic theory. The U.S. Department of Commerce a few years ago questioned about 300 leading firms regarding any studies they had ever made of the price elasticity of demand for their products. The results were not published, chiefly because they were so meager. Few of these leading firms reported having made any demand studies for purposes of pricing. Many of them said it was company policy to price as low as possible, regardless of demand. One summed it up this way: