HEDONIC PRICE ANALYSIS OF THE INTERNET RECREATIONAL EQUINE MARKET by JENNIFER FREEBORN B.S., Colorado State University, 2006 A THESIS submitted in partial fulfillment of the requirements for the degree MASTER OF SCIENCE Department of Agricultural Economics College of Agriculture KANSAS STATE UNIVERSITY Manhattan, Kansas 2009 Approved by: Major Professor Dr. Ted Schroeder Copyright JENNIFER FREEBORN 2009 Abstract Hedonic pricing models have long been used to evaluate prices in high-end segments of the equine industry. However, the lower end markets, including most of the recreational and pleasure horses, have yet to be studied in the economic literature. This study evaluates characteristics affecting the price of recreational horses advertised online, and provides a framework for future market studies on various segments of the equine industry. Data were collected in both the spring and fall of 2008, in addition to a survey being conducted in the fall to collect more accurate pricing information. Three different functional forms were used and their outcomes discussed to determine which one best fit the data. Results show that the semi-log functional form appeared to best fit the data. Characteristics that consistently showed statistical significance included the horse being advertised using a photo ad, the age of the horse, and whether or not the horse was registered. Gender variables and the state which the horse was sold from showed statistical significance in most of the models; although the variables denoting breed were statistically significant as a group, no model consistently found statistical significance in any of the variables individually. Color characteristics did not demonstrate statistical significance consistently in any model. Finally, suggestions for future research are discussed. Data issues could be avoided with larger or more specific data sets; various data sources could be examined or created such as live equine auctions; regions could be examined by show or rodeo circuit instead of by state. There are political issues in the industry that need to be addressed, but a lack of available data needs to be examined and corrected before many issues can be thoroughly examined. The equine industry is often overlooked in economic literature and is a multi-billion dollar agricultural industry which deals with legislative and taxation issues just like the rest of the agricultural world and is deserving of attention. Table of Contents List of Figures .............................................................................................................................. viii List of Tables ................................................................................................................................. ix Acknowledgements ........................................................................................................................ xi Dedication ..................................................................................................................................... xii CHAPTER 1 - Introduction and Objectives ................................................................................... 1 Introduction ................................................................................................................................. 1 U.S. Equine Population ........................................................................................................... 1 Economic Statistics on the U.S. Equine Industry ................................................................... 3 Issues of Concern Regarding Horses ...................................................................................... 6 Importance of the Recreational Horse Segment ..................................................................... 8 Summary ................................................................................................................................. 9 Objectives ................................................................................................................................. 10 CHAPTER 2 - Literature Review ................................................................................................. 12 CHAPTER 3 - Data Source .......................................................................................................... 19 Justification of Website Choice ................................................................................................ 19 Information on Posting Ads on Dreamhorse.com .................................................................... 23 Data Collection Process ............................................................................................................ 25 Issues with Data Source and Collection Process ...................................................................... 27 CHAPTER 4 - Model Development ............................................................................................. 31 Conceptual Model ..................................................................................................................... 31 Variable Descriptions ............................................................................................................... 32 Dependent Variables: Price ................................................................................................... 32 PHorse ............................................................................................................................... 33 APHorse ............................................................................................................................ 33 Independent Variables........................................................................................................... 33 Type of Ad ........................................................................................................................ 34 State................................................................................................................................... 34 Breed ................................................................................................................................. 35 iv Pnt ..................................................................................................................... 35 QH ..................................................................................................................... 35 Pony .................................................................................................................. 36 TB ..................................................................................................................... 36 ClrBrd ............................................................................................................... 36 Arab .................................................................................................................. 37 Saddle ................................................................................................................ 37 Other ................................................................................................................. 37 Cross Bred Term ............................................................................................................... 37 Gender ............................................................................................................................... 38 Geld ................................................................................................................... 38 Stud ................................................................................................................... 38 Mare .................................................................................................................. 38 Mares in Foal .................................................................................................................... 39 Color ................................................................................................................................. 39 Bay .................................................................................................................... 40 Sor ..................................................................................................................... 40 Blk ..................................................................................................................... 40 Grey .................................................................................................................. 40 Pal ..................................................................................................................... 40 Paint .................................................................................................................. 41 Dun .................................................................................................................... 41 Dilute ................................................................................................................ 41 Roan .................................................................................................................. 41 ChBr .................................................................................................................. 42 Method of Sale .................................................................................................................. 42 Age Terms ........................................................................................................................