Hedonic Pricing

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DEFINITION of 'Hedonic Pricing'

A model identifying price factors according to the premise that price is determined both by internal characteristics of the good being sold and external factors affecting it.

BREAKING DOWN 'Hedonic Pricing'

The most common example of the hedonic pricing method is in the housing market: the price of a property is determined by the characteristics of the house (size, appearance, features, condition) as well as the characteristics of the surrounding neighborhood (accessibility to schools and shopping, level of water and air pollution, value of other homes, etc.) The hedonic pricing model is used to estimate the extent to which each factor affects the price.

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