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Estimating class-specific parametric models using finite mixtures: an application to a hedonic model of wine prices

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  • Steven B. Caudill
  • Franklin G. Mixon

Abstract

Hedonic price models are commonly used in the study of markets for various goods, most notably those for wine, art, and jewelry. These models were developed to estimate implicit prices of product attributes within a given product class, where in the case of some goods, such as wine, substantial product differentiation exists. To address this issue, recent research on wine prices employs local polynomial regression clustering (LPRC) for estimating regression models under class uncertainty. This study demonstrates that a superior empirical approach -- estimation of a mixture model -- is applicable to a hedonic model of wine prices, provided only that the dependent variable in the model is rescaled. The present study also catalogues several of the advantages over LPRC modeling of estimating mixture models.

Suggested Citation

  • Steven B. Caudill & Franklin G. Mixon, 2016. "Estimating class-specific parametric models using finite mixtures: an application to a hedonic model of wine prices," Journal of Applied Statistics, Taylor & Francis Journals, vol. 43(7), pages 1253-1261, July.
    • Handle: RePEc:taf:japsta:v:43:y:2016:i:7:p:1253-1261
    DOI: 10.1080/02664763.2015.1094036
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    Cited by:

    1. Steven B. Caudill & Franklin G. Mixon, 2020. "Estimating Bargaining Power in Real Estate Pricing Models: Conceptual and Empirical Issues," JRFM, MDPI, vol. 13(5), pages 1-8, May.
    2. Prieto-Rodriguez, Juan & Vecco, Marilena, 2021. "Reading between the lines in the art market: Lack of transparency and price heterogeneity as an indicator of multiple equilibria," Economic Modelling, Elsevier, vol. 102(C).
    3. Tang, M. & Thompson, N.M. & Boyer, C.N. & Widmar, N.J.O. & Lusk, J.L., 2023. "Implicit Market Segmentation and Valuation of Angus Bull Attributes," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 48(2), May.

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