Survival Analysis: Estimation of the Price-Response Function

Abstract

In the previous chapter, dynamic pricing models were developed to determine optimal pricing strategies for a profit-maximizing used car retailer. The analysis of these models clearly revealed the importance of the demand function and its functional form to the application of the optimization module. However, the identification of an adequate functional form and the estimation of its parameters poses great challenges for both researchers and practitioners, especially for products traded infrequently such as used vehicles. Therefore, the following chapter presents a conceptual framework for estimating individual demand functions by applying survival analysis with special regard to the used car sector and its particular characteristics.