Research on product characteristics: models, applications, and measures
This report summarizes research on product characteristics and provides a bibliography. (Product characteristics are objective properties of products.) Its purpose is to facilitate and encourage further research on the economics of product characteristics. Study of product characteristics is relevant to various problems: quality, grades, standards, product differentiation, and technological change, among others.
The report presents a model of consumer behavior and a model of firm behavior, both of which lead to three hypotheses, (a) Price paid for a product equals the sum of the monetary values of the product’s characteristics. Monetary value of each characteristic of a product equals the product’s marginal yield of the characteristic multiplied by the marginal implicit price paid for the characteristic. (b) Demand for a product is a function of product prices and product characteristics, (c) Total demand for a characteristic depends upon prices of products containing that characteristic, or, alternatively, upon prices of product characteristics. Statistical studies that bear on these three hypotheses are summarized. Linear programming models of blending operations also are used to derive the hypotheses. Results of applying one of the programming models to corn-blending operations are used in an evaluation of com grades. Work on accuracy of pricing of live slaughter cattle and hogs is reported. Pricing accuracy studies attempt to determine what prices "should be” from knowledge of a product’s actual characteristics. Various applications of the two economic models of consumer and firm behavior are discussed.