HEDONIC PRICE ANALYSIS : AN APPLICATION TO THE SINGAPORE CAR MARKET

Abstract

This academic exercise applies the hedonic price theory to the Singapore car market. Rosen's (1974) seminal paper gives a firm theoretical support to the study. The primary objective is to derive a functional form based on a robust statistical framework. Both the "Double Length Regression" procedure and Andrews method justify the use of the semi logarithmic functional form. This is an outstanding achievement in view that past hedonic studies usually select the specification abitrari1y. Ensuing analysis reveals that quality does not play a significant role in price increases and/or decreases. Manufacturers however tend to offer quality-adjusted price discounts on new models. Japanese makes seem to be better buys, especially in the small-size car category. Japanese producers are inclined to sacrifice profits for market share, with an emphasis for growth. The implication of the findings is that in assessing the local car market, particular attention should be paid to the quality aspect of the commodity as opposed to the commodity itself.