Changing Consumer pattern from Price to Attribute; An Empirical study

Abstract

One of the most fundamental building blocks of economics is the law of demand. Demand theory describes and explains individual choice of consumption bundles. Traditional theory considers optimizing behaviour when the consumer's choice is restricted to consumption bundles that satisfy a budget constraint. The budget constraint is determined by price–income pairs.

On the other hand Characteristics demand theory states that consumers derive utility not from the actual contents of the basket but from the characteristics (attributes) of the goods in it. This theory was developed by Kelvin Lancaster in 1966 in his working paper “A New Approach to Consumer Theory”. Lancaster argued that individuals do not have preferences for marketed goods or services as such; instead they have preferences for particular characteristics. The individual gets utility not from the consumption of goods directly but from the acquisition of these characteristics embodied in the goods. Labelling characteristics by the letter Y, an individual's utility can be written as U = U (Y₁, Y₂, …, Y_N) where the various items inside brackets are N characteristics that 'matter' to this person's subjective well-being.