An Alternative Approach for Demand Estimation

Abstract

This paper develops an alternative approach for demand estimation. Taking willingness to pay as model primitive, it establishes a general and yet analytically simple demand function, and proposes an estimation procedure that uses survey to solicit consumers' willingness to pay with which the underlying demand function can be consistently estimated using the ordinary least square estimator. Monte Carlo simulations find the estimation procedure works well in identifying the demand function. This approach can be applied both within and outside academic arenas, for example in economics teaching and for a business to launch new products.