Econometric issues of estimating hedonic price functions: With an application to the U.S. market for automobiles

Abstract

Some econometric issues associated with the characteristics approach to simplify complex market structures, where many differentiated products interact, to a smaller number of homogeneous attributes are considered. These include the choice of functional form for the hedonic price equation, the data requirement for the identification of market demand and supply of characteristics, and the practical method for selecting characteristics to represent differentiated products. The implicit market for U.S. automobile demand is analyzed to illustrate our approach.