Price walking, demand modeling and price elasticity between theory, regulation and practice
In recent years, a lot of progress has been made in predictive modeling in theory and practice. This leads in particular to stronger technical models in pricing, but related issues such as demand modeling are also receiving more and more attention.
First and foremost from the regulatory side: so-called price walking, which is characterized by the targeted setting of different prices for new and existing customers in order to exploit different price elasticities, has been banned by the British FCA and is under consultation with EIOPA.
That is only one reason to look at demand and price elasticity from an actuarial perspective. In doing so, we will distinguish between different modeling approaches, solve extrapolation problems and fundamentally think about inference from observed data to derive price elasticity. Precisely because this price elasticity is an effect of second order, which cannot be considered without the offered price and the base demand, which also needs to be estimated, approaching the problem with a traditional regression mindset will not work.
Finally, we will make the concepts discussed above concrete and explore various possible applications in a hands-on case study.