A Hedonic Price Analysis of Differentiated Products of Unknown Quality: Freshman Sire Stud Fees in the Thoroughbred Breeding Industry

Prices transmit information regarding the underlying quality of a product; when quality is unknown to both buyers and sellers, theory predicts that the same price should be charged for all products. However, in the Thoroughbred industry, difference fees are charged to breed to freshman sires, which are stallions of unknown quality standing their first season at stud. We find that stallion owners/ managers differentiate their products according to attributes which may predict offspring quality. A freshman sire’s own racetrack performance, standing in the state of Kentucky, and descending from a prominent sire line are found to be statistically and economically significant.