Hedonic Pricing of Components and Cointegration Relationships: A Dynamic Analysis of Dairy Product Prices
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The paper investigates the implications of hedonic pricing of components, with an
application to the dynamics of dairy product prices. A conceptual model of hedonic
pricing is developed under a Leontief technology, showing how commodity prices reflect
the underlying value of their components. Implications for the existence of cointegration
relationships among commodity prices are derived. An application to the pricing and
dynamics of selected U.S. dairy commodities is presented. It provides evidence on the
role of component valuation in the dynamics of dairy commodity prices in the short run as
well as in the long run. Distinguishing between market regime and government regime
(when the government price support is active), the analysis finds significant differences in
dairy price dynamics between the two regimes.