I am analyzing pricing for a new streaming service for a school project. My thought is to calculate the demand function of a player in the same industry and then calculate the optimal price. I am a little confused about calculating the demand function for Netflix. I have their subscription fees (converted to annual) since 2007 - x axis and subscribers - y axis. I am getting an upward slope.

Below is the output of regression.

Subscribers = 76.5 + 0.5 Fee_per_year

I would appreciate it if someone can point out what mistake I am making.


You cannot empirically calculate the demand function in your current setting. Finding a demand function is indeed very difficult in general.

What we can observe, i.e. the data you have, is the market equilibrium over time, i.e. the equilibrium price and quantity levels. These are determined by the interplay of supply and demand. So when you observe a price and quantity you are not observing demand, but rather a combination of demand and supply.

To find the demand curve, you would need, for example, an instrument variable, i.e a variable that is correlated with demand, but independent of supply.

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