• A
  • A
  • A
  • ABC
  • ABC
  • ABC
  • А
  • А
  • А
  • А
  • А
Regular version of the site

Article

The impact of functional and social value on the price of goods

Plos One. 2018. Vol. 13. No. 11. P. 1-12.
Schoors K., Hoefman K., Bramson A., Ryckebusch J.

According to hedonic pricing theory (HPT) market forces operate on individual characteristics
of a good, and the price of a product is the aggregate of the price across those characteristics.
The relationship between price and characteristics remains poorly understood
because characteristic qualities are hard to quantify, people have varying levels of information
about characteristics, and people have heterogeneous preferences over characteristics.
By analyzing data from a large, market-driven virtual world we are able to test HPT,
while largely avoiding these pitfalls. We find that a linear model with functional characteristics
predicts the prices poorly, but a log-linear model performs quite well. Adding social characteristics
to this log-linear model improves the predictions substantially. This work strongly
supports HPT and demonstrates a “rational” calculus including social value.