The Demand Curve and Pricing

Overview

Bayesianism in Pricing

One of the biggest challenges in pricing is the lack of data necessary to measure the demand curve. Ideally, a firm would like to run an experiment where it changes its price to various price points and measures the response. This is not generally a viable plan, although companies can try to approximate this by running different price points in different test markets.

When there is not enough data to fit a model well, firms must find ways to create a model that utitilizes the data that is available while still recognizing its limitations. One form of statistical that deals with integrating new data with prior expectations in a precise fashion is bayesianism.