A Hedonic Price Model to Recover Marginal Willingness to Pay for Product Attributes in the Presence of Market Power

Abstract

This study uses a hedonic price framework to estimate consumers’ marginal willingness to pay for product attributes in imperfectly competitive markets. Our approach allows for the joint estimation of price-cost markups and marginal values of product attributes under the popular semi-log specification, improving the applicability and reliability of empirical hedonic valuation studies. Applying this new empirical strategy to analyze U.S. lift ticket prices, our results reveal an estimated price-cost ratio between one and two, with pass-sharing arrangements further amplifying this markup. Ignoring market power can bias the hedonic valuation of product attributes.