When Supply and Demand Meet: Structural Models of Pricing
- Reduced-form models represent only one side of the market, usually the demand. They are made of a single equation where only one variable can be estimated, the others being set as fixed. For instance, demand functions typically produce estimates of sales volumes (or market share) for a given price.
- Structural models provide a full modeling of the market where supply and demand are estimated simultaneously via a system of equations.
- Structural models make a full use of microeconomics: firm theory, consumer theory, market structure and industrial organization.