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Lancaster's characteristics approach revisited: product selection using non-parametric methods

Author

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  • Angel S. Fernandez-Castro

    (Departamento de Economía Financieira e Contabilidade, University of La Coruña, Spain)

  • Peter C. Smith

    (Department of Economics and Related Studies, University of York, UK)

Abstract

In consumer theory, the principles of Lancaster's characteristics approach and hedonic pricing appear to offer the most promising insight into choice when qualitative aspects are important. The paper reconciles these principles with the family of non-parametric frontier estimation methods known as data envelopment analysis. It is shown that, with some straightforward adjustments, DEA is entirely consistent with the characteristics view of consumer choice found in the economics literature. In making Lancaster's ideas operational, the paper also addresses the theoretical concern voiced by Lancaster about combining indivisible products. The principles are illustrated with a case study involving the comparison of diesel cars. The paper concludes that the user will ultimately have to apply some judgement in choosing between competing efficient products. However, the analysis should help to restrict the number of products to be assessed to manageable proportions. Copyright © 2002 John Wiley & Sons, Ltd.

Suggested Citation

  • Angel S. Fernandez-Castro & Peter C. Smith, 2002. "Lancaster's characteristics approach revisited: product selection using non-parametric methods," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 83-91.
    • Handle: RePEc:wly:mgtdec:v:23:y:2002:i:2:p:83-91
    DOI: 10.1002/mde.1048
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    References listed on IDEAS

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    1. Per Andersen & Niels Christian Petersen, 1993. "A Procedure for Ranking Efficient Units in Data Envelopment Analysis," Management Science, INFORMS, vol. 39(10), pages 1261-1264, October.
    2. D Bouyssou, 1999. "Using DEA as a tool for MCDM: some remarks," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 50(9), pages 974-978, September.
    3. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    4. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74(2), pages 132-132.
    5. Doyle, JR & Green, RH, 1991. "Comparing products using data envelopment analysis," Omega, Elsevier, vol. 19(6), pages 631-638.
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    Cited by:

    1. Mika Kortelainen & Timo Kuosmanen, 2007. "Eco-efficiency analysis of consumer durables using absolute shadow prices," Journal of Productivity Analysis, Springer, vol. 28(1), pages 57-69, October.
    2. J-D Lee & A Repkine & S-W Hwang & T-Y Kim, 2004. "Estimating consumers' willingness to pay for individual quality attributes with DEA," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 55(10), pages 1064-1070, October.
    3. Jeong-Dong Lee & Seogwon Hwang & Tai-Yoo Kim, 2005. "The Measurement of Consumption Efficiency Considering the Discrete Choice of Consumers," Journal of Productivity Analysis, Springer, vol. 23(1), pages 65-83, January.
    4. Tabassum Ali & Aftab Alam & Jabir Ali, 2021. "Factors Affecting Consumers’ Purchase Behaviour for Health and Wellness Food Products in an Emerging Market," Global Business Review, International Management Institute, vol. 22(1), pages 151-168, February.
    5. Chumpitaz, Ruben & Kerstens, Kristiaan & Paparoidamis, Nicholas & Staat, Matthias, 2010. "Comparing efficiency across markets: An extension and critique of the methodology," European Journal of Operational Research, Elsevier, vol. 205(3), pages 719-728, September.
    6. Inha Oh & Jeong-Dong Lee & Seogwon Hwang & Almas Heshmati, 2010. "Analysis of product efficiency in the Korean automobile market from a consumer’s perspective," Empirical Economics, Springer, vol. 38(1), pages 119-137, February.
    7. François-Charles Wolff, 2016. "Bargaining powers of buyers and sellers on the online diamond market: a double perspective non-parametric analysis," Annals of Operations Research, Springer, vol. 244(2), pages 697-718, September.
    8. Ruben Chumpitaz & Kristiaan Kerstens & Nicholas Paparoidamis & Matthias Staat, 2010. "Hedonic price function estimation in economics and marketing: revisiting Lancaster’s issue of “noncombinable” goods," Annals of Operations Research, Springer, vol. 173(1), pages 145-161, January.
    9. Ljubica Nedelkoska, 2010. "Occupations at risk: The task content and job stability," Jena Economics Research Papers 2010-024, Friedrich-Schiller-University Jena.
    10. Damian R. Ward, 2005. "Measuring the value of product characteristics in the UK monthly savings market," The Service Industries Journal, Taylor & Francis Journals, vol. 25(7), pages 907-923, October.
    11. Ward, Damian Robert, 2009. "Product differentiation and consumption efficiency in mortgage markets," Journal of Business Research, Elsevier, vol. 62(8), pages 805-809, August.
    12. González, Eduardo & Cárcaba, Ana & Ventura, Juan, 2015. "How car dealers adjust prices to reach the product efficiency frontier in the Spanish automobile market," Omega, Elsevier, vol. 51(C), pages 38-48.
    13. Choi, Hyundo & Oh, Inha, 2010. "Analysis of product efficiency of hybrid vehicles and promotion policies," Energy Policy, Elsevier, vol. 38(5), pages 2262-2271, May.

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