Hedonic pricing model and its application to the Turkish passenger car sector

The foundation of this thesis lies in the theory of consumer behaviour proposed by K. Lancaster. According to Lancaster, characteristics of good is the origin of the demand of this good. The good does not provide consumers with utility, rather the characteristics inherent in the good originate the consumers? utility. Every characteristic has a price which is called ?implicit? price, and this price is a part of good?s price. According to the Hedonic Pricing Model, the sum of characteric?s price is the price of the good. Since CPI (Consumer Price Index) is a fixed-weight Laspeyres Index, it could not take into consideration the quality flow in the consumer goods. That is why Hedonic Pricing Model is used to eliminate quality bias in price indexes. This approach has been applied to Turkish passenger car sector for the period 1994-2002 in order to produce ?quality-adjusted? price index. Then this index was compared with the CPI for car issued by Turkish State Statistical Commitee.