Consumer demand theory, goods and characteristics: Breathing empirical content into the Lancastrian approach

To begin with, it is argued that consumer demand theory has resulted in narrowly econometric more than broadly managerial applications. Further, Lancaster's recognition of the intrinsic attributes of goods has not been adequately exploited. Lancaster is summarized and appraised and empirical work to date reviewed. Finally a test of the characteristics hypothesis is given, using survey data on beer consumption. Subjectivity of choice is explicitly recognized and factor analysis is used to evaluate the components of demand of which quality and price variables appear to dominate. With the matching of the people‐characteristics features (demand) and the technical goods‐characteristics attributes (supply) a method of predicting demand is derived. This methodology may be used for a wide range of consumer goods.