A Friction Model for Describing and Forecasting Price Changes
Marketing Science Vol. 6, No. 4, pp. 299-319, Fall 1987
21 Pages Posted: 27 May 2016
Date Written: November 1, 1987
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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