Introducing Cross-Elasticities in Demand Algorithms

Abstract

Demand for products is determined not only by the usual marketing variables of price, promotion, quality, etc., but also by the interrelation-ships among those variables. These interrelationships are referred to as cross-elasticities. To better model the actual market place, a simulation demand algorithm that allows not only for changing elasticities, but also for cross-elasticities, needs to be utilized. Building on Teach's Distance Model, this paper describes methodology to incorporate and control cross-elasticities in demand algorithms.