Using the marginal value of characteristics, we show how to construct bounds on the
exact hedonic price index. When prices are above marginal costs then our bounds still
apply, but the value of characteristics cannot be measured so easily from a hedonic
regression. Since the price--cost markups are an omitted variable, they will bias
the coefficients obtained. For a special class of utility functions, we argue that
a linear regression will still provide a measure of the marginal value of characteristics,
but a log-linear regression will overstate these values.