Estimating consumer preferences using market data—an application to us automobile demand

Abstract

Abstract This paper explores the possibility of using market data to identify consumer preferences. A utility function composed of ‘homogeneous’ characteristics and goods‐specific effects is used as a basic link between the goods space and the characteristics space. The functional form for the hedonic price equation, the data requirements and issues of measurement errors for estimating demand and supply of characteristics are discussed. We illustrate the methodology by considering the US automobile demand using 1969–86 data compiled from Consumer Reports and Ward's Automotive Yearbook .