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Constructing a Quality-Adjusted Price Index for a Heterogeneous Oligopoly

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  • David Prentice
  • Xiangkang Yin

Abstract

Both the theory and practice of using hedonic regressions to remove quality effects in price indexes are implicitly developed for monopolistic competitive markets. In this paper, we theoretically and practically analyse the application of a standard hedonic regression for an oligopoly. In the theoretical work, we recast how for an oligopoly the standard hedonic regression may be unstable. Then in the empirical work, we recommend using the weighted imputation method for constructing an index and estimating separate hedonic regressions for market segments. We apply these recommendations to estimating a quality-adjusted price index for the Australian passenger vehicle market and find they make a substantial difference. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester, 2004.

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Bibliographic Info

Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 72 (2004)
Issue (Month): 4 (07)
Pages: 423-442

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Handle: RePEc:bla:manchs:v:72:y:2004:i:4:p:423-442

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  20. David Prentice & Xiangkang Yin, 2004. "Constructing a Quality-Adjusted Price Index for a Heterogeneous Oligopoly," Manchester School, University of Manchester, vol. 72(4), pages 423-442, 07.
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Cited by:
  1. Kremmer, M.L. & Prentice, D., 2005. "On the Double Imputation Hedonic Price Index," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 35(1-2), pages 103-112, March/Sep.
  2. David Prentice & Xiangkang Yin, 2004. "Constructing a Quality-Adjusted Price Index for a Heterogeneous Oligopoly," Manchester School, University of Manchester, vol. 72(4), pages 423-442, 07.

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