Hedonic price function estimation in economics and marketing: revisiting Lancaster's issue of ‘noncombinable’ goods

Hedonic price function estimation in economics and marketing: revisiting Lancaster's issue of ‘noncombinable’ goods

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Article ID: iaor20101495
Volume: 173
Issue: 1
Start Page Number: 145
End Page Number: 161
Publication Date: Jan 2010
Journal: Annals of Operations Research
Authors: , , ,
Keywords: marketing, economics
Abstract:

Following Lancaster's (1966 and 1979) interpretation of his characteristics approach to consumer theory, this contribution focuses on theoretical and empirical arguments questioning the smoothness of traditional hedonic price estimation techniques. Lancaster argued strongly against ‘combinability’, i.e., that any efficient combination of characteristics is feasible and sensible. We therefore explicitly test the impact of convexity using a set of recent non-parametric estimators. The test is carried out on a sample of 114 digital cameras whose price evolution is followed over 6 months. The hypothesis of convexity is rejected using the Li (1996) test. The conclusions point out implications for economics and marketing.

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