Hedonic Price Functions and Market Structure: An Analysis of Supply-Motivated Submarkets for Salmon in California

Abstract

Hedonic price functions are frequently used to identify the marginal implicit prices for characteristics of differentiated products, including seafood products. These marginal implicit prices are determined by both consumer preferences and producer costs. When preferences or costs for a single characteristic differ systematically across omitted submarkets, the results are an average of the heterogeneous effects. An empirical test for the joint significance of interaction terms is sufficient to identify the presence of submarkets. We motivate the selection of submarkets on the basis of production differences across salmon species, then use county-level aggregate retailer scanner data for the US state of California from 2013 to 2016 to estimate hedonic price functions. The results indicate that species and production method submarkets exist. Letting differences in production motivate the dimensions for submarkets results in a more accurate picture of the market.