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Demand Functions in Decision Modeling: A Comprehensive Survey and Research Directions

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  • The authors are grateful to the editor (Professor Asoo J. Vakharia), the senior editor, the associate editor, and two anonymous referees for their insightful comments that helped improve the article. The authors also thank Professor Youhua (Frank) Chen for fruitful discussions and his helpful comments during the early stages of this research. The first author (Jian Huang) was supported by the National Natural Science Foundation of China under the project reference numbers 70901036 and 70861002.

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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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