Estimating demand function for product characteristics, The case for automobiles

This paper illustrates how the Rosen (1974) model of consumer choice can be used to estimate demand and supply functions for product characteristics; in this case, for six characteristics of automobites. We also show how the demand functions for characteristics can be used to recover consumer pref-erence functions. There is an increasing interest in the "new eco-nomic theory of consumer behavior, " as is evi-denced by a number of articles in the consumer re-search literature (Haines 1975; Ladd and Zober 1977; 1979; Pekelman and Sen 1975; Ratchford 1975; 1979; Ryans 1974). However, almost all of these articles adopt a Lancastrian framework in their analysis. An-other theoretical framework in the economics litera-ture, which has the potential of being as useful as the Lancastrian framework for consumer researchers, has been advanced by Rosen (1974). In this paper, we dis-cuss the Rosen (1974) model in some detail and dem-onstrate that it is possible to estimate demand func-tions for product characteristics using this model. Not only can the price elasticity of demand for product attributes be estimated, but it is also possible to de-termine how demand varies among types of con-sumers, as described by demographic, life cycle, prod-uct usage, or other relevant variables. As a consequence, market segments and their preferences can be identified. I Consistent with the economics tradition, the demand functions for product characteristics are derived from a utility maximization framework. Except that the ar-guments of the utility function are product character-istics rather than goods, the required methodology i