I would like to model price elasticity for a product but, I have limited data. I have the following data:

1. Revenue by Month (2007 & 2008)
2. Gross Profit by month(2007 & 2008)
3. GP Margin % by month (2007 & 2008)

I was thinking using GP margin % as a proxy for price. (increase in GP = increase in price) and Revenue for demand? Would using Revenue as a proxy for demand work?

What do you guys think about comparing %change in GP from Jan07 to Jan08 vs% change in revenue?

any input is appreciated... thanks!

7/17/2008 3:13:19 PM

You would need some kind of quantity sold to measure an elasticity. Also, youre measure a huge market. So it wouldnt really say a whole lot. Though, your B coefficient will be your long run P.E.D. for that variable (price) -- (with quantity as your dependent). Like....

Quantity = Bo + B1 price + whatever + error term

Where B1 would reflect the long run price elasticity of demand. Expect to be negative obviously

[Edited on July 20, 2008 at 7:36 PM. Reason : ]

7/20/2008 7:35:39 PM