Abstract
To understand the behavior of firms and to assess the degree of competition among firms, we need information on the demand function faced by the firm. Despite this, little published work has been forthcoming on the demand for branded goods and two obvious explanations come to mind: the problem of quality variation among brands of the same commodity and the lack of data on market-share behavior. This contribution is largely concerned with developing an operational version of a demand-forbrand model in which quality variation is explicitly recognized. This is accomplished by following up a suggestion made by Griliches (1961) and generating implicit prices for the range of qualitative attributes a commodity possesses. This allows us to construct quality-adjusted prices for each brand which are the correctly specified prices for the demand equation. The model is tested out in the U.K. market for farm tractors and found to give satisfactory results.
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