<p>From my understanding, the hedonic regression is trying to regress price on product characteristics and determine the contribution of each characteristic on price. However, economic theory suggests that price is also affected by underlying market structure. Even for two products with very similar characteristics, their prices may be drastically different under perfectly competitive vs oligopolist market. Similarly, the availability of close substitutes or complement affect the price too. Therefore, such things need to be taken into account or controlled for to get the true effect of characteristics on price. I got the following questions:</p>
<ol>
<li><p>For the standrad hedonic regression, what's the underlying assumption on the market structure and the availability of substitutes/complements? Why?</p>
</li>
<li><p>How to rigorously incorporate market structure and availability of substitutes/complements and construct a valid extended hedonic regression?</p>
</li>
</ol>
<p>It would be great if you could give me some related reference paper or book chapter in your answer. Thanks!</p>

CC BY-SA 4.0
2024-11-03T18:42:40.387Z
A good place to start is: https://web.stanford.edu/~lanierb/research/Demand_Estimation_JPE.pdf
Jesper Hybel
CC BY-SA 4.0
2024-11-03T22:53:39.427Z
@JesperHybel Thanks! This is very helpful!
ExcitedSnail
<regression><price><demand-system-estimation>
How to incoporate an oligopoly market structure or the availability of substitute/complements into a hedonic regression?
ExcitedSnail
# How to incoporate an oligopoly market structure or the availability of substitute/complements into a hedonic regression?

(Asked by: username_0 on 2024-11-03)

From my understanding, the hedonic regression is trying to regress price on product characteristics and determine the contribution of each characteristic on price. However, economic theory suggests that price is also affected by underlying market structure. Even for two products with very similar characteristics, their prices may be drastically different under perfectly competitive vs oligopolist market. Similarly, the availability of close substitutes or complement affect the price too. Therefore, such things need to be taken into account or controlled for to get the true effect of characteristics on price. I got the following questions:

1. For the standrad hedonic regression, what's the underlying assumption on the market structure and the availability of substitutes/complements? Why?
2. How to rigorously incorporate market structure and availability of substitutes/complements and construct a valid extended hedonic regression?

It would be great if you could give me some related reference paper or book chapter in your answer. Thanks!

**Tags:** regression, price, demand-system-estimation

> **Comments:**
> **username_1**: A good place to start is: https://web.stanford.edu/~lanierb/research/Demand_Estimation_JPE.pdf  
> **username_0**: @username_1 Thanks! This is very helpful!  

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## 0 answers

