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

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.

Willingness to pay for the ecological restoration of an inland freshwater shallow lake: case of Lake Malombe, Malawi

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“…Therefore, holding the number of doors constant and making a non-radial expansion from B to b' onto the dotted or thick frontier is a more appropriate means of measuring efficiency. The importance of non-linearities between product characteristics and price is also recognized in the hedonic pricing literature (Ekeland et al, 2004 andChumpitaz et al, 2010).…”

“…Non‐parametric efficiency measurement is widely understood, appropriate software packages exist and problems tend not to be computationally demanding. Third, this study extends and supports the growing literature characterized by Fernandez‐Castro and Smith (); Lee et al ., (, , and 2008); Ward (); and Chumpitaz et al ., (), which investigate economic consumption problems from an efficiency perspective.…”

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