Abstract:
This paper sketches a model of product differentiation according to the hedonic hypothesis that is based on the theory of consumer behavior of Lancaster (1971). Lancaster suggested that utility is derived from the characteristics of the good and not the good itself. Thus, from the perception of the consumer, every characteristic has a price. This is the hedonic (or implicit) price. We have estimated implicit price and quality changes of Iranian car market for the years 2005 to 2010. The empirical results indicate that during this period the safety variables (types of airbags and brakes) have been the most important variables affecting the price of automobile, and also the changes in the quality of new automobiles sold in Iran have been responsible for price increases of about 47% during this period.
Machine summary:
"Using Hedonic Prices to Estimate Quality Changes concerning Iranian Automobile Market Esmaeil Abounoori 1 Department of Economics, University of Semnan, Semnan esmaiel.
In this Received: 18/12/2011 Accepted: 5/8/2012 ( Corresponding author paper, the hedonic approach is used to estimate the implicit price and quality changes of Iranian automobile market for the period of 2005-2010.
This methodology was used by Triplet (1969), Griliches (1971) and then revived by Reis and Santos Silva (2006) who used hedonic regressions again to gauge the bias of standard price indexes caused by incorrectly accounting for quality changes in automobiles.
Feenstra (1987), Melo and Messerlin (1988) and Bourdet (1991) used hedonic regressions to study the effect of trade restrictions on the price and quality of automobile imports.
1 Model To estimate the implicit price of each characteristic and estimate quality changes in Iranian car market, we have used the equation as follows: Variables used in this equation are; dollar price of automobile (P), engine displacement (ENG), acceleration 0-100 km/h (ACC), width measured in centimeter (WID), height in centimeter (HEI), fuel consumption measured in Liter/100Km (FUEL), Anti Lock Brakes and Electronic Brake-Force Distribution (DBRAE), dummy variable with 1 if present and 0 if not, Anti Lock Brakes, Electronic Brake-Force Distribution and Electronic Stability Program and Anti Slip Regulation (DBRF), dummy variable with 1 if present and 0 if not, driver and passenger side Airbag (DABRS), dummy variable with 1 if present and 0 if not and dual front Airbags, side body Airbags and side head Airbags (DABF), dummy variable with 1 if present and 0 if not."