ABSTRACT
The unidimensional nature of microeconomic analysis has been subjected recently to long-overdue criticism, on the grounds of its distance from reality. 1 It is stressed by critics that a product should be defined not in terms of a one-dimensional unit of measurement but rather in terms of its attributes, aspects or characteristics, which generally are multidimensional. Nevertheless, this ‘abstract-product’ approach, to use Baumol’s terminology, remains in a primitive state. Advances have been most noteworthy in the theory of consumer demand. Yet even the most elegant studies in this field – those of Baumol [1] and Lancaster [3] – suffer from oversimplified models. Thus Baumol [1, p. 682] must resort to artificial devices to cope with his assumption of completely inelastic demand for any one consumer, and Lancaster makes the strong assumption that the characteristics of a product are identical for all consumers. Quite apart from unrealistic assumptions, however, their models suffer a fundamental deficiency: pricing according to attributes, i.e. multidimensional pricing, is not considered.
