Demand curve estimation

Demand curve estimation refers to the exercise of estimating the demand curve, typically the market demand curve (as opposed to the individual demand curve) for a good. Demand curve estimation is typically done for the following purposes:

• It may be done by sellers (and in some cases buyers) with significant market power, so that they can decide the appropriate price to set. Note that buyers or sellers who do not have market power simply set the price as the market price and know that whatever quantity they produce will get sold. In contrast, in the extreme case of a monopoly, the seller chooses both the price and quantity but is not guaranteed to sell everything. In order to be so guaranteed, the seller needs to have a plot of the market demand curve so that the (price,quantity) pair can be chosen as a point on the demand curve.