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

Abstract

This study employs 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 both price-cost markups and marginal values of product attributes under the popular semi-log specification, improving both the applicability and reliability of empirical hedonic valuation studies. Applying this new empirical strategy to analyze US lift ticket prices, our results reveal an estimated price-cost ratio between 1 and 2, with pass-sharing arrangements further amplifying this markup. Ignoring market power can bias the hedonic valuation of product attributes.