A Friction Model for Describing and Forecasting Price Changes

Wayne S. DeSarbo · Vithala R. Rao · Joel H. Steckel · Jerry Yoram Wind · Richard A. Colombo

33 citations0/0 files storedMarketing Science

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Forecasting Techniques and Applications Consumer Market Behavior and Pricing Innovation Diffusion and Forecasting

Abstract

This paper presents a new friction model for describing the price changes of a product or brand over time and for forecasting both the timing and magnitude of such changes from one period to the next. After a review of the related pricing literature, we present our model and a modified controlled random search procedure for estimating its parameters. The model is applied to describe and forecast the weekly mortgage interest rates for a local bank in the Philadelphia area. Finally, limitations and several potential applications of this methodology are discussed.

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References

1977Time Series Analysis: Forecasting and Control 1974Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition 1979An Information Processing Theory of Consumer Choice 1976Optimal Advertising and Optimal Quality 1986The Rigidity of Prices 1975Dynamic Price Models for New-Product Planning 1984The Learning Curve and Pricing in the Chemical Processing Industries 1978Organizational Context and the Success of Management Information Systems

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