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Measuring consumerwelfareinthe CPU market: anapplication of the pure‐characteristics demand model
Author(s) -
Song Minjae
Publication year - 2007
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2007.tb00076.x
Subject(s) - economic surplus , economics , valuation (finance) , microeconomics , welfare , product differentiation , econometrics , consumer demand , demand curve , consumption (sociology) , product (mathematics) , social welfare , willingness to pay , mathematics , social science , geometry , finance , cournot competition , sociology , political science , law , market economy
In this article, I estimate demand for the personal computer central processing unit and measure consumer welfare using the pure characteristics demand model. The model is based on a quasilinear utility function with multiplicative random variables and does not have the idiosyncratic logit error term, so that consumer welfare directly reflects consumers' valuation of product characteristics. Welfare calculations show that consumer surplus comprises approximately 90% of total social surplus and that large welfare gains have resulted from the introduction of new products.