Hedonic price functions and the measurement of preferences: The case of Swedish wine consumers

Abstract

A hedonic price function for wine is estimated using Swedish data, 1989–1991. Implicit prices for quality attributes are determined not from a regression of variety price on a vector of quality attributes, but rather from a regression of quantity sold (adjusted for weeks of availability) on price and quality attributes. Such a ‘reduced form’ is justified by the assumption that prices and attribute contents can be taken as exogenous to the Swedish consumer. Price elasticity is estimated to be about — 1.65 holding quality constant, showing that Swedish consumers are highly sensitive to price. Estimates of the implicit valuations of quality attributes are shown to differ greatly from those obtained from the more usual hedonic regression with price as the dependent variable.