Models are simplified mathematical representations of reality. While they may not fully capture all aspects of realism, they allow economists to analyze relationships using mathematics and statistics. For instance, data can be utilized as an input in an equation that links a product's demand to its price, thereby enabling predictions regarding how demand varies with price changes.
Due to practical considerations, developing a model that includes every realistic detail is unlikely. In our example, a product's demand may also be influenced by the prices of other products. Given the potentially infinite number of different products, it is necessary to make assumptions regarding the number of products involved. Another challenge that arises is determining which products are relevant. These issues may have solutions, or they may not. Nevertheless, research has progressively identified solutions over time, resulting in models that are increasingly more realistic.
It is important to recognize that economists frequently utilize models from the economic literature. These models are often peer-reviewed, having undergone scrutiny by economists to ensure their logical consistency. Subsequently, models from the literature may be adapted for competition analyses based on specific facts.