The 'Fixed Demand Curve' Assumption in Pricing Models
When modeling a firm with a differentiated product, it is often assumed that the firm sets its price based on a fixed demand curve. This 'fixed demand curve' assumption is a simplification that presumes the firm's pricing decisions will not provoke a response from its competitors. The underlying logic is that a firm's demand elasticity is determined by the availability of substitutes, which is a direct result of competitors' product and pricing decisions. Therefore, assuming the demand curve is given is equivalent to assuming that competitors' strategies will remain unchanged in response to the firm's actions.
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Introduction to Microeconomics Course
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Ch.7 The firm and its customers - The Economy 2.0 Microeconomics @ CORE Econ
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