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The Measurement of Consumption Efficiency Considering the Discrete Choice of Consumers

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  • Jeong-Dong Lee
  • Seogwon Hwang
  • Tai-Yoo Kim

Abstract

In this study we propose a mathematical definition of the consumption efficiency of multi-attribute products in the price–quality space. A new model, the discrete Range Adjusted Measure (RAM) model, is suggested as an empirical tool to measure the level of consumption efficiency. We further discuss the effect of consumption efficiency on the innovation incentive. Empirical work is made for the mobile phone market. We expect that the consumption efficiency concept will contribute to the extension of the traditional framework of production efficiency analysis on the one hand and to the understanding of the nature of innovation in a technology-intensive market on the other hand. Copyright Springer Science+Business Media, Inc. 2005

Suggested Citation

  • Jeong-Dong Lee & Seogwon Hwang & Tai-Yoo Kim, 2005. "The Measurement of Consumption Efficiency Considering the Discrete Choice of Consumers," Journal of Productivity Analysis, Springer, vol. 23(1), pages 65-83, January.
    • Handle: RePEc:kap:jproda:v:23:y:2005:i:1:p:65-83
    DOI: 10.1007/s11123-004-8548-y
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    References listed on IDEAS

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    1. Lukas Steinmann & Peter Zweifel, 2001. "The Range Adjusted Measure (RAM) in DEA: Comment," Journal of Productivity Analysis, Springer, vol. 15(2), pages 139-144, March.
    2. Simon P. Anderson & André De Palma & Jacques-François Thisse, 1989. "Demand for Differentiated Products, Discrete Choice Models, and the Characteristics Approach," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(1), pages 21-35.
    3. Feenstra, Robert C, 1995. "Exact Hedonic Price Indexes," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 634-653, November.
    4. Angel S. Fernandez-Castro & Peter C. Smith, 2002. "Lancaster's characteristics approach revisited: product selection using non-parametric methods," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 83-91.
    5. Swait, Joffre & Adamowicz, Wiktor, 2001. "Choice Environment, Market Complexity, and Consumer Behavior: A Theoretical and Empirical Approach for Incorporating Decision Complexity into Models of Consumer Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 86(2), pages 141-167, November.
    6. William Cooper & Kyung Park & Jesus Pastor, 2001. "The Range Adjusted Measure (RAM) in DEA: A Response to the Comment by Steinmann and Zweifel," Journal of Productivity Analysis, Springer, vol. 15(2), pages 145-152, March.
    7. William Cooper & Kyung Park & Jesus Pastor, 1999. "RAM: A Range Adjusted Measure of Inefficiency for Use with Additive Models, and Relations to Other Models and Measures in DEA," Journal of Productivity Analysis, Springer, vol. 11(1), pages 5-42, February.
    8. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74(2), pages 132-132.
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    Citations

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    Cited by:

    1. Kerstens, Kristiaan & Mounir, Amine & de Woestyne, Ignace Van, 2011. "Non-parametric frontier estimates of mutual fund performance using C- and L-moments: Some specification tests," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1190-1201, May.
    2. Avkiran, Necmi K. & Morita, Hiroshi, 2010. "Benchmarking firm performance from a multiple-stakeholder perspective with an application to Chinese banking," Omega, Elsevier, vol. 38(6), pages 501-508, December.
    3. W. Cooper & L. Seiford & K. Tone & J. Zhu, 2007. "Some models and measures for evaluating performances with DEA: past accomplishments and future prospects," Journal of Productivity Analysis, Springer, vol. 28(3), pages 151-163, December.
    4. Vasiliki Fourmouzi & Margarita Genius & Peter Midmore & Vangelis Tzouvelekas, 2009. "Measurement of Consumption efficiency in Price-Quantity Space: A Distance Function Approach," Working Papers 0912, University of Crete, Department of Economics.
    5. Inha Oh & Jeong-Dong Lee & Seogwon Hwang & Almas Heshmati, 2010. "Analysis of product efficiency in the Korean automobile market from a consumer’s perspective," Empirical Economics, Springer, vol. 38(1), pages 119-137, February.
    6. Jeong-Dong Lee & Chansoo Park & Dong-Hyun Oh & Tai-Yoo Kim, 2008. "Measuring consumption efficiency with utility theory and stochastic frontier analysis," Applied Economics, Taylor & Francis Journals, vol. 40(22), pages 2961-2968.
    7. François-Charles Wolff, 2016. "Bargaining powers of buyers and sellers on the online diamond market: a double perspective non-parametric analysis," Annals of Operations Research, Springer, vol. 244(2), pages 697-718, September.
    8. Ruben Chumpitaz & Kristiaan Kerstens & Nicholas Paparoidamis & Matthias Staat, 2010. "Hedonic price function estimation in economics and marketing: revisiting Lancaster’s issue of “noncombinable” goods," Annals of Operations Research, Springer, vol. 173(1), pages 145-161, January.
    9. Ljubica Nedelkoska, 2010. "Occupations at risk: The task content and job stability," Jena Economics Research Papers 2010-024, Friedrich-Schiller-University Jena.
    10. Ward, Damian Robert, 2009. "Product differentiation and consumption efficiency in mortgage markets," Journal of Business Research, Elsevier, vol. 62(8), pages 805-809, August.
    11. Jeong-Dong Lee, 2009. "Industry Dynamics and Productivity Research," TEMEP Discussion Papers 200929, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Nov 2009.
    12. González, Eduardo & Cárcaba, Ana & Ventura, Juan, 2015. "How car dealers adjust prices to reach the product efficiency frontier in the Spanish automobile market," Omega, Elsevier, vol. 51(C), pages 38-48.
    13. Choi, Hyundo & Oh, Inha, 2010. "Analysis of product efficiency of hybrid vehicles and promotion policies," Energy Policy, Elsevier, vol. 38(5), pages 2262-2271, May.

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