A Friction Model for Describing and Forecasting Price Changes
Wayne S. DeSarbo, Vithala R. Rao, Joel H. Steckel, Jerry Wind, Richard Colombo
Marketing Science · 1987 · Volume 6 · Issue 4
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.
Keywords
friction model, price changes, price reaction, description, forecasting
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