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Journal ArticleDOI

Demand functions in decision modeling : a comprehensive survey and research directions

01 Jun 2013-Decision Sciences (John Wiley & Sons, Ltd)-Vol. 44, Iss: 3, pp 557-609
TL;DR: A comprehensive survey of commonly used demand models which depend on price, rebate, lead time, space, quality, and quality, as well as game theoretic multifirm models involving strategic interaction among the firms.
Abstract: A variety of mathematical forms have been developed to characterize demand functions which depend on a firm's operational and marketing activities. Such demand functions are being increasingly used by researchers in economics and different functional areas of business. We provide a comprehensive survey of commonly used demand models which depend on (i) price, (ii) rebate, (iii) lead time, (iv) space, (v) quality, and (vi) advertising. Our survey includes single firm–demand models in each category, as well as game theoretic multifirm models involving strategic interaction among the firms. We observe that certain types of functional forms, such as linear, power/iso-elastic, multinomial logit, and multiplicative competitive interaction, have been widely used to construct various demand models in all six categories, but that a large majority of publications deal with categories (i) and (v) of demand models. For each of the six categories, we survey relevant functional forms in the representative papers, and discuss the main properties, the advantages, the disadvantages, and comment on possible future research directions. We also present discussions of the applications of these analytical demand models in empirical studies. The article ends with a summary of our major findings.

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Citations
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Journal ArticleDOI
TL;DR: The results indicate that the distortion from a non-coordinated supply chain (the double marginalization effect) has counter-intuitive impact on the degree of product “greenness”; the joint impact from price and greenness competition on equilibrium greenness depends on the relative strength of the two types of competition.

429 citations


Cites methods from "Demand functions in decision modeli..."

  • ...According to the recent survey paper on demand function modeling by Huang, Leng, and Parlar (2013), the linear demand model is widely adopted in the economic modeling literature (for example, Banker, Khosla, and Sinha (1998), Choi (1996), Chen (2001), Karaer and Erhun (2015), and Yan and Tang…...

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Journal ArticleDOI
TL;DR: In this article, the authors study the impact of government subsidies for green technology adoption on the manufacturing industry's response to demand uncertainty and show that an increase in demand uncertainty leads to higher production quantities and lower prices, resulting in lower profits for the supplier.
Abstract: This paper studies government subsidies for green technology adoption while considering the manufacturing industry’s response. Government subsidies offered directly to consumers impact the supplier’s production and pricing decisions. Our analysis expands the current understanding of the price-setting newsvendor model, incorporating the external influence from the government, who is now an additional player in the system. We quantify how demand uncertainty impacts the various players (government, industry, and consumers) when designing policies. We further show that, for convex demand functions, an increase in demand uncertainty leads to higher production quantities and lower prices, resulting in lower profits for the supplier. With this in mind, one could expect consumer surplus to increase with uncertainty. In fact, we show that this is not always the case and that the uncertainty impact on consumer surplus depends on the trade-off between lower prices and the possibility of underserving customers with h...

279 citations

Journal ArticleDOI
TL;DR: In this article, the authors investigated the pricing and determination of the degree of greenness of a product in competition with a non-green product under two dual-channel supply chains including retail and internet channels.

203 citations

Journal ArticleDOI
TL;DR: In this article, the authors studied the impact of government subsidies for green technology adoption while considering the manufacturing industry's response and showed that the decentralized decisions are also optimal for a central planner managing jointly the supplier and the government.
Abstract: This paper studies government subsidies for green technology adoption while considering the manufacturing industry's response. Government subsidies offered directly to consumers impact the supplier's production and pricing decisions. Our analysis expands the current understanding of the price-setting newsvendor model, incorporating the external influence from the government who is now an additional player in the system. We quantify how demand uncertainty impacts the various players (government, industry and consumers) when designing policies. We further show that for convex demand functions, an increase in demand uncertainty leads to higher production quantities and lower prices, resulting in lower profits for the supplier. With this in mind, one could expect consumer surplus to increase with uncertainty. In fact, we show this is not always the case and the uncertainty impact on consumer surplus depends on the trade-off between lower prices and the possibility of under-serving customers with high valuations. We also show that when policy makers such as governments ignore demand uncertainty when designing consumer subsidies, they can significantly miss the desired adoption target level. From a coordination perspective, we demonstrate that the decentralized decisions are also optimal for a central planner managing jointly the supplier and the government. As a result, subsidies provide a coordination mechanism.

137 citations

References
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Book
01 Jan 1988
TL;DR: The Theory of Industrial Organization as discussed by the authors is the first primary text to treat the new industrial organization at the advanced-undergraduate and graduate level Rigorously analytical and filled with exercises coded to indicate level of difficulty, it provides a unified and modern treatment of the field with accessible models that are simplified to highlight robust economic ideas.
Abstract: The Theory of Industrial Organization is the first primary text to treat the new industrial organization at the advanced-undergraduate and graduate level Rigorously analytical and filled with exercises coded to indicate level of difficulty, it provides a unified and modern treatment of the field with accessible models that are simplified to highlight robust economic ideas while working at an intuitive level To aid students at different levels, each chapter is divided into a main text and supplementary section containing more advanced material Each chapter opens with elementary models and builds on this base to incorporate current research in a coherent synthesis Tirole begins with a background discussion of the theory of the firm In part I he develops the modern theory of monopoly, addressing single product and multi product pricing, static and intertemporal price discrimination, quality choice, reputation, and vertical restraints In part II, Tirole takes up strategic interaction between firms, starting with a novel treatment of the Bertrand-Cournot interdependent pricing problem He studies how capacity constraints, repeated interaction, product positioning, advertising, and asymmetric information affect competition or tacit collusion He then develops topics having to do with long term competition, including barriers to entry, contestability, exit, and research and development He concludes with a "game theory user's manual" and a section of review exercises

9,777 citations


"Demand functions in decision modeli..." refers background in this paper

  • ...The customer’s utility function is U(q, p, L) = u(q, p) − γL where u(q, p) represents the leadtimeindependent utility function which is increasing in q and decreasing in p, and γ is the marginal decrease in utility for a unit increase in leadtime....

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  • ...Incorporating firms’ entry decisions, Salop (1979) extended the above “linear city model” to the “circular city model” (also see, e.g., Tirole, 1988) under the following assumptions: Consumers are located uniformly on a circle with a perimeter equal to 1....

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  • ...For a thorough review of the Hotelling models and their extensions, see Martin (1993) and Tirole (1988)....

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  • ...Demand arises over time according to a Poisson process with intensity λ, and customers have homogeneous preference over the price p, the valuation of product (quality) q, and the product’s delivery leadtime, L....

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  • ...Since the classic demand models for homogenous products were comprehensively discussed in the literature (see, for example, Tirole, 1988 ; Vives, 1999), this section only focuses on reviewing the demand models for firms’ pricing competition with product differentiation....

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Book ChapterDOI
TL;DR: In this paper, it was shown that if the purveyor of an article gradually increases his price while his rivals keep theirs fixed, the diminution in volume of his sales will in general take place continuously rather than in the abrupt way which has tacitly been assumed.
Abstract: After the work of the late Professor F. Y. Edgeworth one may doubt that anything further can be said on the theory of competition among a small number of entrepreneurs. However, one important feature of actual business seems until recently to have escaped scrutiny. This is the fact that of all the purchasers of a commodity, some buy from one seller, some from another, in spite of moderate differences of price. If the purveyor of an article gradually increases his price while his rivals keep theirs fixed, the diminution in volume of his sales will in general take place continuously rather than in the abrupt way which has tacitly been assumed.

7,932 citations


"Demand functions in decision modeli..." refers background in this paper

  • ...Hotelling (1929) proposed a price competition model (called “the linear city model”) with horizontal product differentiation, with the following features: Two competing firms produce identical products or offer the same service, and the firms differ from each other because of the space location,…...

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  • ...For a thorough review of the Hotelling models and their extensions, see Martin (1993) and Tirole (1988). Incorporating firms’ entry decisions, Salop (1979) extended the above “linear city model” to the “circular city model” (also see, e....

    [...]

  • ...For a thorough review of the Hotelling models and their extensions, see Martin (1993) and Tirole (1988)....

    [...]

  • ...Hotelling (1929) developed the demand systems with product differentiation based on heterogeneous tastes of consumers and under Hotelling’s demand systems, Chamberlin (1933) and Robinson (1933) discussed imperfect competition with product differentiation....

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Journal ArticleDOI
TL;DR: In this article, Pettengill tests whether there is an excessive number of firms in a monopolistically competitive equilibrium by a device of considerable expository merit, and redistributes the resources thus released equally over the remaining firms in the sector, to see if welfare can be improved.
Abstract: Pettengill tests whether there is an excessive number of firms in a monopolistically competitive equilibrium by a device of considerable expository merit. He removes one firm, and redistributes the resources thus released equally over the remaining firms in the sector, to see if welfare can be improved. To do this correctly, we write n, for the equilibrium number of firms and xe for the output of each. With fixed cost a and constant average variable cost c, removing one firm releases (a + Cxe) of resources, and this enables the output of each of the remaining ( I) firms to be increased (a + c Xe )/(1fl 1)}. The quantity xo of the numeraire good is unaffected by this, and the utility function (equation (31) of our paper) is

6,161 citations

Journal ArticleDOI
TL;DR: In this article, a model of spatial competition in which a second commodity is explicitly treated is presented, and it is shown that a zero-profit equilibrium with symmetrically located firms may exhibit rather strange properties.
Abstract: The Chamberlinian monopolistically competitive equilibrium has been explored and extended in a number of recent papers. These analyses have paid only cursory attention to the existence of an industry outside the Chamberlinian group. In this article I analyze a model of spatial competition in which a second commodity is explicitly treated. In this two-industry economy, a zero-profit equilibrium with symmetrically located firms may exhibit rather strange properties. First, demand curves are kinked, although firms make "Nash" conjectures. If equilibrium lies at the kink, the effects of parameter changes are perverse. In the short run, prices are rigid in the face of small cost changes. In the long run, increases in costs lower equilibrium prices. Increases in market size raise prices. The welfare properties are also perverse at a kinked equilibrium.

3,056 citations


"Demand functions in decision modeli..." refers background in this paper

  • ...Incorporating firms’ entry decisions, Salop (1979) extended the above “linear city model” to the “circular city model” (also see, e.g., Tirole, 1988) under the following assumptions: Consumers are located uniformly on a circle with a perimeter equal to 1....

    [...]

Book ChapterDOI
TL;DR: The diffusion of an innovation traditionally has been defined as the process by which that innovation iscommunicated through certain channels over time among the members of a social system.
Abstract: The diffusion of an innovation traditionally has been defined as the process by which that innovation is “communicated through certain channels over time among the members of a social system” (Rogers, 1983, p. 5). As such, the diffusion process consists of four key elements: innovation, communication channels, time, and the social system.

2,535 citations