Measuring Market Efficiency and Welfare Loss

Abstract

This study presents a general methodology capable of addressing a number of fundamental questions in consumer policy. Are consumers paying more than the minimum price for a given bundle of attributes? If so, what brands cost more than the consumer needs to pay? What would be the degree of improvement in the consumer's well being if some intervention sets the price of such inefficient brands at the efficient level? We apply the methodology to data on automobiles and several other goods and analyze the determinants of efficiency.