TY - JOUR
T1 - On the distribution of product price and quality
AU - Coad, Alex
PY - 2009
Y1 - 2009
N2 - We investigate the structure of demand by focusing on the distribution of prices within narrowly-defined classes of goods. We observe considerable heterogeneity-products that are functionally similar but presumably of different 'quality' may sell at very different prices. We analyze distribution of prices for bottles of wine, used cars, houses in London and week-long holidays in Majorca, and observe in each case that the the resulting distribution is more skewed than the lognormal but less skewed than a Pareto distribution. We then present a theoretical model whereby products can distinguish themselves along multiple hedonic dimensions of 'performance', with these product attributes being random variables subject to multiplicative interactions. Variations of this model can reproduce a lognormal price distribution and a Pareto distribution as lower and upper bound benchmarks (respectively).
AB - We investigate the structure of demand by focusing on the distribution of prices within narrowly-defined classes of goods. We observe considerable heterogeneity-products that are functionally similar but presumably of different 'quality' may sell at very different prices. We analyze distribution of prices for bottles of wine, used cars, houses in London and week-long holidays in Majorca, and observe in each case that the the resulting distribution is more skewed than the lognormal but less skewed than a Pareto distribution. We then present a theoretical model whereby products can distinguish themselves along multiple hedonic dimensions of 'performance', with these product attributes being random variables subject to multiplicative interactions. Variations of this model can reproduce a lognormal price distribution and a Pareto distribution as lower and upper bound benchmarks (respectively).
KW - Consumption
KW - Pareto distribution
KW - Price distribution
KW - Quality
KW - Stochastic modelling
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U2 - 10.1007/s00191-009-0142-z
DO - 10.1007/s00191-009-0142-z
M3 - Article
AN - SCOPUS:70349686803
VL - 19
SP - 589
EP - 604
JO - Journal of Evolutionary Economics
JF - Journal of Evolutionary Economics
SN - 0936-9937
IS - 4
ER -