Hedonic Models and Market Segmentation

48 Pages Posted: 3 Sep 2021

See all articles by Steven C. Bourassa

Steven C. Bourassa

Florida Atlantic University

Martijn Dröes

University of Amsterdam

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School

Date Written: September 1, 2021

Abstract

This paper explores the pricing of heterogeneous goods in the presence of market segmentation. We use housing as an example. We extend the theoretical hedonic model of Rosen (1974) and show that, in the presence of market segmentation, the hedonic price line is no longer continuous or unique. Using American Housing Survey data for the Miami and Louisville metropolitan areas and a finite mixture estimation approach, we find distinct market segments based on ethnicity, race, and income.

Keywords: market segmentation, product differentiation, hedonic model, finite mixture model.

JEL Classification: E02, R31, O18.

Suggested Citation

Bourassa, Steven C. and Dröes, Martijn and Hoesli, Martin Edward Ralph, Hedonic Models and Market Segmentation (September 1, 2021). Swiss Finance Institute Research Paper No. 21-62, Available at SSRN: https://ssrn.com/abstract=3916232 or http://dx.doi.org/10.2139/ssrn.3916232

Steven C. Bourassa

Florida Atlantic University ( email )

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Martijn Dröes

University of Amsterdam ( email )

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Martin Edward Ralph Hoesli (Contact Author)

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

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University of Aberdeen - Business School ( email )

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