Chapter 4:

Demand Estimation

Marketing Research Approaches to

Demand Estimation
Consumer

Surveys

data from survey questions

Observational

data from observed behavior

Consumer

Clinics

data from laboratory experiments

Market

Research

Experiments

data from real market tests

Regression Analysis
Year

10

44

40

11

42

12

46

11

48

12

52

13

54

13

58

14

56

10

15

60

Scatter Diagram

Regression Analysis
Regression

Line: Line of Best Fit

Regression

Line: Minimizes the sum of

the squared vertical deviations (et) of
each point from the regression line.

Ordinary

Least Squares (OLS) Method

Multiple Regression
Analysis
Model:

Y a b1 X 1 b2 X 2 L bk ' X k '

Problems in Regression
Analysis
Multicollinearity:

Two or more
explanatory variables are highly
correlated.
Heteroskedasticity: Variance of error
term is not independent of the Y
variable.
Autocorrelation: Consecutive error terms
are correlated.

Steps in Demand
Estimation
Model

Specification: Identify Variables

Collect Data
Specify Functional Form
Estimate Function
Test the Results