Experimental Methods for Measuring Demand

Goal: To set the optimum price for a new product

Discrete choice models• Assumptions

– Participants must be knowledgeable– The decision rule is “buy-not buy”

• Select a subject pool (sample of existing clients)• Divided them into groups (3, 5, etc.) of at least

100• Interview them (on-line survey)

GMO Wheat

• GMO wheat (like GMO soy) has a gene inserted that increases resistance to a common general herbicide (24-D) aka glyphosate or “Round-up”

• The advantage is that the farmer can apply 24-D to the field, even with the crops growing, to kill all weeds, but leave the crop standing.

• The lowers costs and also allows the farmer to reduce the use of herbicides (since one does not need to tailor herbicides to the type of weed.

Survey Process

• Famers answer a range of questions about herbicide use and understanding of GMO products (Most have a good understanding)

• These initial questions serve to orient the farmer to the topic.

• Then each group is asked a question…• Would you buy Odyssey seed if it were $15 per

acre (group 1); $20 per acre (group2)….

$15/Acre

$20/Acre

$25/Acre

$30/Acre

$35/Acre

Per

cent

“Y

es”

0

50%

Assuming that farmers will not change their planting (not the case!), we can calculate the total revenue for each price

To

tal R

eve

nu

e (a

s a

func

tion

of p

rice

)

Price

$15/Acre

$20/Acre

$25/Acre

$30/Acre

$35/Acre

Maxium revenue .

This is not the same TR as we studied in the course – why?