Hedonic price function estimation in economics and marketing: revisiting Lancaster's issue of "noncombinable" goods

Following Lancaster’s (1966, 1979) own interpretation of his characteristics approach to consumer theory, this contribution focuses on the theoretical and empirical arguments questioning the smoothness of traditional hedonic price estimation techniques. Indeed, Lancaster argued strongly against “combinability”, i.e., that any efficient combination of characteristics is feasible and sensible, which is what the traditional convexity assumption implies. We therefore explicitly test the impact of convexity using a set of recent nonparametric estimators. The test is carried out on a sample of 114 digital camera’s whose price evolution is followed over 6 months. The hypothesis of convexity is rejected using the Li (1996) test statistic. The conclusions point out some implications for economics and marketing.