Centre for Microdata Methods and Practice

A hedonic price function describes the equilibrium relationship between characteristics of a product and its price. They are used to predict prices of new goods, to adjust for quality change in price indexes, and to mea-sure consumer and producer valuations of di¤erentiated products. They emerge as market outcomes from both competitive and non-competitive markets. The functional form is determined by the distribution of buy-ers and their preferences, the distribution of sellers and their costs, and the structure of competition in the market. Hedonic price function A hedonic price function describes the equilibrium relationship be-tween the economically relevant characteristics of a product or service (or bundle of products) and its price. For example, in a simple labour economics model, the hedonic wage function might describe how the wages of a worker depend on education, experience, and skill. In a sim