Posted in Marketing and Strategy Terms, Total Reads: 1037
Definition: Demand Density
It is the measure of demand spread over different geographical segments of the market. It the concentration of demand for a good or service across market. Thus when the producer to demand ratio falls there is an increase in demand density, as the supply reduces. Thus we can also conclude that increase in demand density led to decrease in dispersion.
When comparing very dense urban markets to their rural counterparts, there is noticeable differences in productivity, implying that demand density ranges several orders of magnitude across the market. The sample being smaller and having less density variation results in smaller and less precise demand density coefficients.
Between and within given market areas, observed intra-industry variation in Productivity and observed intra-industry variation in Productivity is influenced by Local demand density. Higher-density markets, have larger plants in order to cater to the needs of a larger population. Increases in demand density, led to equilibrium with less cost dispersion and lower average costs in the market. Depending on how the number of equilibrium producers varies with density, influence of demand density on the number of producers serving each customer and on average plant size is determined. Number of producers at entry and after the shakeout are influenced by the demand density. Even there is a decrease in substitutability, due to the drop in demand density .In predictable ways, plant-level productivity distributions changes, due to demand density differences across geographically segmented market. Higher average productivity levels and with less dispersion in local productivity markets have higher demand density, plants tend to be larger and serve more customers on average.