Kelvin Lancaster

Bio: Kelvin Lancaster is an academic researcher from Columbia University. The author has contributed to research in topics: Product differentiation & Product (category theory). The author has an hindex of 17, co-authored 23 publications receiving 16299 citations.

A New Approach to Consumer Theory

Abstract: Activity analysis is extended into consumption theory. It is assumed that goods possess, or give rise to, multiple characteristics in fixed proportions and that it is these characteristics, not goods themselves, on which the consumer’s preferences are exercised.

The General Theory of Second Best

Abstract: There is an important basic similarity underlying a number of recent works in apparently widely separated fields of economic theory. Upon examination, it would appear that the authors have been rediscovering, in some of the many guises given it by various specific problems, a single general theorem. This theorem forms the core of what may be called The General Theory of Second Best. Although the main principles of the theory of second best have undoubtedly gained wide acceptance, no general statement of them seems to exist. Furthermore, the principles often seem to be forgotten in the context of specific problems and, when they are rediscovered and stated in the form pertinent to some problem, this seems to evoke expressions of surprise and doubt rather than of immediate agreement and satisfaction at the discovery of yet another application of the already accepted generalizations.

The Economics of Product Variety: A Survey

Abstract: Demand for variety may arise from a taste for diversity in individual consumption and/or from diversity in tastes even when each consumer chooses a single variant. The full degree of variety potentially demanded will not, in general, be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants. The economics of product variety consists essentially in analysing the effect of this balance in different situations, and comparing the degree of product variety for different market structures with each other and with the optimum. The survey commences with the work on market structures with single product firms generalized monopolistic competition, tracing modern developments in both the Chamberlinian and Hotelling traditions. The latter has been particularly fruitful, due to the expansion of the original locational ideas into virtual spaces in product characteristics. The emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures, including strategic market preemption. Although most work has been in a full information context, there have been advances in product variety under imperfect information either by consumers to properties of the firms' products or firms as to consumers' demands.

Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition

Abstract: A class of differentiated products is completely described by a vector of objectively measured characteristics. Observed product prices and the specific amounts of characteristics associated with each good define a set of implicit or "hedonic" prices. A theory of hedonic prices is formulated as a problem in the economics of spatial equilibrium in which the entire set of implicit prices guides both consumer and producer locational decisions in characteristics space. Buyer and seller choices, as well as the meaning and nature of market equilibrium, are analyzed. Empirical implications for hedonic price regressions and index number construction are pointed out.

Monopolistic competition and optimum product diversity

Abstract: Pettengill tests whether there is an excessive number of firms in a monopolistically competitive equilibrium by a device of considerable expository merit. He removes one firm, and redistributes the resources thus released equally over the remaining firms in the sector, to see if welfare can be improved. To do this correctly, we write n, for the equilibrium number of firms and xe for the output of each. With fixed cost a and constant average variable cost c, removing one firm releases (a + Cxe) of resources, and this enables the output of each of the remaining ( I) firms to be increased (a + c Xe )/(1fl 1)}. The quantity xo of the numeraire good is unaffected by this, and the utility function (equation (31) of our paper) is

Customer satisfaction, market share, and profitability: Findings from Sweden.

Abstract: Are there economic benefits to improving customer satisfaction? Many firms that are frustrated in their efforts to improve quality and customer satisfaction are beginning to question the link betwe...

Mental Accounting and Consumer Choice

Abstract: A new model of consumer behavior is developed using a hybrid of cognitive psychology and microeconomics. The development of the model starts with the mental coding of combinations of gains and losses using the prospect theory value function. Then the evaluation of purchases is modeled using the new concept of “transaction utility.” The household budgeting process is also incorporated to complete the characterization of mental accounting. Several implications to marketing, particularly in the area of pricing, are developed. This article was originally published in Marketing Science, Volume 4, Issue 3, pages 199--214, in 1985.

Automobile prices in market equilibrium

Abstract: This paper develops techniques for empirically analyzing demand and supply in differentiated products markets and then applies these techniques to analyze equilibrium in the U.S. automobile industry. Our primary goal is to present a framework which enables one to obtain estimates of demand and cost parameters for a class of oligopolistic differentiated products markets. These estimates can be obtained using only widely available product-level and aggregate consumer-level data, and they are consistent with a structural model of equilibrium in an oligopolistic industry. When we apply the tech- niques developed here to the U.S. automobile market, we obtain cost and demand parameters for (essentially) all models marketed over a twenty year period.