I am given a list with items and corresponding prices and units sold. Those items can be clustered into product groups. For most of the items, between 2 and 3 different prices can be observed. This seems to be very little information to calculate a price elasticity of demand for the different items. An idea I had is to take all of a groups' items, normalize the prices and use all the data points to calculate the elasticity of demand. Since this topic is new to me, I would very much appreciate some feedback whether this approach makes sense or not.
It would make sense if the products/items are homogenous (same) eg. different brands of milk, bottled water etc.
If they are heterogenous then each product demand will have different elasticity so trying to calculate elasticity out of multiple heterogenous products does not make sense.
Also, do not forget price and quantity demanded are endogenous, so when you are estimating your demand function to get the elasticity you need to account for reverse causality.