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, a normative approach (Konyar and Knapp). The two methods are quite distinct, in part because they use different information. If historic data is available, employing a positive approach allows for estimates based on observed rather than simulated data (Agharya-Madnani). However, available data is sometimes not adequate to use econometrics to estimate demand for some products in the feed industry and the use of historic data alone may ignore the impact of changes in technology and management practices (Konyar and Knapp). Alternatively, use of a normative approach allows for estimates based on events that have not yet occurred (Konyar and Knapp; Johnson and Varghese). Because its use does not require historic price data, the normative approach is particularly appropriate for estimating demand for new products or those on which little or no historical data is available. Another advantage of a normative demand estimation technique for feed ingredients is that its use facilitates consideration of individual groups of animals (e.g., within a particular production stage). Thus, it allows livestock to which co-products offer the highest value to be identified. Linear programming has long been used by nutritionists and practitioners to formulate least cost rations, and by researchers to evaluate the effect of ration composition and other management and marketing practices on the profitability of farm enterprises (e.g., see Brennen and Hoffman). It accommodates complex problems with multiple constraints and results in specific information about the value of individual feed ingredient characteristics (e.g., protein content) and the cost of imposed constraints. More refined estimates of feeds as components of least cost rations and of their contribution to the nutrient requirements of individual animals result than when other normative estimation techniques are used (Peeters and Surry). Use of linear programming to obtain detail about the role of various livestock classes in comprising demand for a feedstuff requires specific information such as nutritional characteristics of individual ration components, characteristics of and nutrient requirements for individual animals, number of animals, and current prices for the product for which demand is being estimated as well as for other feedstuffs available to the animal in the region of interest. Caution must also be exercised in interpreting elasticities calculated from resulting demand schedules. Their step-wise nature can result in elasticities between zero, where quantity demanded does not change in response to price changes, and infinity, where there exists a range of quantities demanded at a single price. This problem can be corrected by regressing the data generated from solving least cost rations into smooth cost functions from which curvilinear demand schedules can be derived. This so-called µpseudo-data approach¶ has been employed to estimate demand for various feeds (e.g., see Mickinzie et al.; Peeters; Peeters and Surry). However, its use has been criticized because bias can be introduced into demand estimates and the smoothing process may result in demand schedules which violate one or more nutritional constraints (Peeters and Surry). Shonkwiler and Yen developed a two-step estimation procedure for censored limited dependent variables to correct for the former. This technique is described in more detail in the methods section.
but less control than in the oligopoly or monopolistic situation. Under imperfect competition.Demand estimation Existing products pose a particular challenge to their vendors. If the change being considered by a company will involve an increase in the price of the good and the good is highly elastic. small changes in price result in large changes in quantity. since consumers buy less on price and more on image or perceived quality. These companies have some control over the market. there are many sellers marketing nearly identical products. Consumer optimization suggests that e market is considerable. if a product does not keep up with its competitors. In perfect competition. 2. companies undertake demand analysis to determine what not only the preferences that their consumers have for products and possible product changes. This is the case when goods are considered commodities and product enhancements do little to change the public's perception. On the other hand. Individual companies have very little control over prices since any change in price results in the consumer going to another supplier. the company may lose market share. or stay on the cutting edge of technology (where appropriate). but also to determine the lifecycle stage that the product is in. vendors will find that they lose market share. If a product has a particularly high elasticity of demand. In an oligopoly. or even imperfect competition. Utilities . the good has a highly inelastic demand schedule. the company may want to go ahead with product enhancements that are designed to take advantage of that inelasticity and which offer the potential to maintain market share in the face of possible increased competition by companies willing to make similar investments. If. customers may switch to competing products. These situations can be contrasted with perfect competition. in which the elasticity of demand is of particular importance. The demand analysis focuses on determining the demand schedule for the product. there are many differentiated sellers producing products with perceived differences (the actual differences may be far less). however. If too much change is put on an existing product. To combat this. there are few producers and little or no difference in product. These producers have some market power. or limited product differentiation.
or 40.500 of them commute to work with 73. a survey of demographics for the city helps define the "available market" . state.are a current situation of a monopoly and also a situation where market power has been exercised. or the entire country or globe. either on a local or regional basis. Because of the unique nature of the product (key to survival in today's age). Despite market potential. This method combines economic theory and statistical techniques of estimation. 36.9% driving alone and another 18. there are more than 90 varieties of market demand across five different space levels and three different time levels. . This is presumably in the best interest of According to Kotler (2000). Sixty percent of the 66. With respect to market demand and market potential for car insurance in Carson. With respect to market potential. For example. Economics theory thus helps in determining the general form of demand function. potential consumers must have access to product and have available income to afford purchasing it. market demand may be for the short-term or long-term and it may cover a region. market potential is defined as "the set of consumers who profess a sufficient level of interest in a market offer" (Kotler 2000. Economic theory is employed to specify the determinants of demand and to determine the nature of the relationship between the demand for a product and its determinants.the market of consumers with access and income to afford the product. California. most utilities are regulated by government. 62).988 residents of Carson who are 16-years of age or older. are employed (Profile 2000). Of the 40.590. and because of the large capital investment that is required to enter the utility industry.590 employed residents.2% relying on carpooling (Pro Regression method Regression analysis is the most popular method of demand estimation. Statistical techniques are employed to estimate the values of parameters in the estimation equation.
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