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Shine bright like a diamond: a hedonic model of grading and pricing an experience good

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  • Justin A. Lee
  • Steven B. Caudill
  • Franklin G. Mixon

Abstract

Diamonds are generally evaluated on the basis of sensory characteristics, such as carat (weight), colour, clarity and cut. However, given the experience goods nature of diamonds, few consumers grasp how the sensory characteristics of these stones are evaluated by the gemological grading laboratories that independently issue diamond reports. This study extends prior research by determining whether diamonds graded by certain gemological laboratories are subject to pricing premiums or discounts in online retail markets. Regression models employing a sample of 169 483 real-time diamond offerings from online diamond retailers (e.g. Blue Nile, James Allen and Adiamor) find significant price discounts attributable to diamonds graded by the European Gemological Laboratory USA in relation to diamonds graded by the Gemological Institute of America (GIA) and significant price premiums attributable to diamonds graded by the American Gem Society in relation to diamonds graded by the GIA.

Suggested Citation

  • Justin A. Lee & Steven B. Caudill & Franklin G. Mixon, 2014. "Shine bright like a diamond: a hedonic model of grading and pricing an experience good," Applied Economics, Taylor & Francis Journals, vol. 46(16), pages 1829-1838, June.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:16:p:1829-1838
    DOI: 10.1080/00036846.2014.884707
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    Cited by:

    1. Rachel A. Smith & C. Nicholas McKinney & Steven B. Caudill & Franklin G. Mixon, 2016. "Consumer ratings and the pricing of experience goods: hedonic regression analysis of beer prices," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 4(1), pages 1-10, December.

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