We use the following regression modelD=β1+β2P+β3PC+uto study the effect of changing a product’s sales price P on the demand of the product D fora home company.In the regression, sales price of a similar product by the home company’s competitor,denoted by PC, is also considered.How would you interpret coefficient β2 ?
A unit increase of the home company’s price would change the demand by β2, if the competitor would not change their price.
A unit increase of the competitor’s price would change the demand by β2, taking into account that the home company would change their price in reaction to the competitor’s price change.
A unit increase of the competitor’s price would change the demand by β2, if the home company would not change their price.
A unit increase of the home company’s price would change the demand by β2, taking into account that the competitor would change their price in reaction to the home company’s price change.
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