In price theory, the inverse demand function describes the functional relationship between a price p and the quantity x that can be sold at this price: x = x(p).
In its simplest form, an inverse demand function can be described by the equation x = a + b * p, where a represents the prohibitive price, that is, the price at which the sales quantity is zero.
Inverse demand functions form the basis for strategic pricing. However, to determine a profit- or sales-optimal price, the inverse demand function must be combined with the sales and profit function. As the inverse demand function of a market is often not known in practice, empirical methods (conjoint analysis) or the use of historical data, but also qualitative methods such as expert estimates are used.