A network price elasticity of demand model with product substitution

A new price model that characterizes the transfer of demands between products through the concept of product networks is proposed. Via replacing the basic unit: pairs of products, to be used when considering the relationships between demands and prices of different products, with networks, the proposed model requires less observations to calibrate. Therefore, considering all the substitute products in the proposed model in analyzing price elasticity is possible. The feasibility of the proposed approach is demonstrated in its application to data from two North American grocery stores.