Product Differentiation, Attribute Substitution and Hedonic Pricing

Two powerful concepts in Economic Theory could open up a treasure house for research in Management Sciences, especially in the area of marketing. First, the concept of product differentiation, articulating that products are similar but not identical. Second, the concept of attribute substitution, emphasizing that goods are a bunch of attributes, and consumers substitute attributes and not products as such. This has led to the concept of implicit or hedonic pricing. The paper is an attempt to examine the relationship between product differentiation and attributes based pricing. It also attempts to derive Attribute-Induced Innovation of product Development, by eliminating undesirable attributes in the product and by grafting desirable attributes into the product through R&D efforts.