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Old 01-27-2013, 02:18 PM   #1
PKA111
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Price Elasticity based on log regression



Hello genius people!!

1) If i understand correctly, In the regression equation below,

WS= White shoes
BS=Black shoes


Sales of WS = β1 (Price of WS) - β2(price of BS) + constant

Then, can I say ....β1 = price elasticity of WS and
β2 = price elasticity of BS

Or

log (sales of WS) = β1*log (Price of WS) - β2* log (price of BS) + constant

is it now β1 = price elasticity of WS and β2 = price elasticity of BS ?

Why is log applied to calculate price elasticity?

2) If WS has two promotion
a) Price discount of 15%
b) Buy one pair and get another pair free
Then how to incorporate it in the regression equation (OLS), considering both promotions appear only for two month separately I mean how the data should be set up? Should I have separate variables for these two promotions? and should i have 0 for rest of the months when there is no promotion?

Sales of WS = β1 (Price of WS) - β2(Discount 15%) β3 (buy one get one) β4(price of BS) + Constant

Would the above equation be correct and would respective β values would be elasticity of each variable??
Thanks
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