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

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  • Ruben Chumpitaz
  • Kristiaan Kerstens
  • Nicholas Paparoidamis
  • Matthias Staat

Abstract

Following Lancaster’s (J. Political Econ. 74(1):132–157, 1966 ; Variety, equity and efficiency, 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 (Econ. Rev. 15(3):261–274, 1996 ) test. The conclusions point out implications for economics and marketing. Copyright Springer Science+Business Media, LLC 2010

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  • 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.
    • Handle: RePEc:spr:annopr:v:173:y:2010:i:1:p:145-161:10.1007/s10479-008-0354-x
    DOI: 10.1007/s10479-008-0354-x
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