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The Dynamics of Brand Equity: A Hedonic Regression Approach to the Laser Printer Market

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  • Ludwig von Auer
  • Mark Trede

Abstract

The authors develop a dynamic approach to measuring the evolution of comparative brand premium, an important component of brand equity. A comparative brand premium is defined as the pairwise price difference between two products being identical in every respect but brand. The model is based on hedonic regressions and grounded in economic theory. In constrast to existing approaches, the authors explicitly take into account and model the dynamics of the brand premia. By exploiting the premia’s intertemporal dependence structure, the Bayesian estimation method produces more accurate estimators of the time paths of the brand premia than other methods. In addition, the authors present a novel yet straightforward way to construct confidence bands that cover the entire time series of brand premia with high probability. The data required for estimation are readily available, cheap, and observable on the market under investigation. The authors apply the dynamic hedonic regression to a large and detailed data set about laser printers gathered on a monthly basis over a four-year period. It transpires that, in general, the estimated brand premia change only gradually from period to period. Nevertheless the method can diagnose sudden downturns of a comparative brand premium. The authors’ dynamic hedonic regression approach facilitates the practical evaluation of brand management.

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File URL: http://www1.wiwi.uni-muenster.de/cqe/forschung/publikationen/cqe-working-papers/CQE_WP_12_2010.pdf
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Bibliographic Info

Paper provided by Center for Quantitative Economics (CQE), University of Muenster in its series CQE Working Papers with number 1210.

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Length: 30 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:cqe:wpaper:1210

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Keywords: brand equity; price premium; hedonic regression; Bayesian estimation; dynamic linear model;

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References

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  1. Ludwig Von Auer & John Brennan, 2007. "Bias and inefficiency in quality-adjusted hedonic regression analysis," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 39(1), pages 95-107.
  2. Hjorth-Andersen, Chr, 1984. " The Concept of Quality and the Efficiency of Markets for Consumer Products," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 11(2), pages 708-18, September.
  3. Ernst R. Berndt & Neal J. Rappaport, 2001. "Price and Quality of Desktop and Mobile Personal Computers: A Quarter-Century Historical Overview," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 268-273, May.
  4. Avi Goldfarb & Qiang Lu & Sridhar Moorthy, 2009. "Measuring Brand Value in an Equilibrium Framework," Marketing Science, INFORMS, INFORMS, vol. 28(1), pages 69-86, 01-02.
  5. Venkatesh Shankar & Pablo Azar & Matthew Fuller, 2008. "—: A Multicategory Brand Equity Model and Its Application at Allstate," Marketing Science, INFORMS, INFORMS, vol. 27(4), pages 567-584, 07-08.
  6. Chib, Siddhartha, 1993. "Bayes regression with autoregressive errors : A Gibbs sampling approach," Journal of Econometrics, Elsevier, Elsevier, vol. 58(3), pages 275-294, August.
  7. Parcell, Joseph L. & Schroeder, Ted C., 2007. "Hedonic Retail Beef and Pork Product Prices," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, Southern Agricultural Economics Association, vol. 39(01), April.
  8. Chib, Siddhartha & Greenberg, Edward, 1995. "Hierarchical analysis of SUR models with extensions to correlated serial errors and time-varying parameter models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(2), pages 339-360, August.
  9. Ludwig Auer, 2007. "Hedonic price measurement: the CCC approach," Empirical Economics, Springer, Springer, vol. 33(2), pages 289-311, September.
  10. Nelson, Randy A & Tanguay, Tim L & Patterson, Christopher D, 1994. "A Quality-Adjusted Price Index for Personal Computers," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 12(1), pages 23-31, January.
  11. V. Srinivasan & Chan Su Park & Dae Ryun Chang, 2005. "An Approach to the Measurement, Analysis, and Prediction of Brand Equity and Its Sources," Management Science, INFORMS, INFORMS, vol. 51(9), pages 1433-1448, September.
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Cited by:
  1. Ludwig von Auer & Mark Trede, 2014. "Markets with Technological Progress: Pricing Quality, and Novelty," CQE Working Papers, Center for Quantitative Economics (CQE), University of Muenster 3014, Center for Quantitative Economics (CQE), University of Muenster.
  2. Ludwig von Auer & Mark Trede, 2014. "Markets with Technological Progress: Pricing, Quality, and Novelty," Research Papers in Economics 2014-05, University of Trier, Department of Economics.

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