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Econometric Estimates of Prices Indexes for Personal Computers in the 1990s

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  • Ernst R. Berndt
  • Zvi Griliches
  • Neal Rappaport

Abstract

In this paper we construct a number of quality-adjusted price indexes for personal computers in the U.S. marketplace over the 1989- 92 time period. We generalize earlier work by incorporating simultaneously the time, age and vintage effects of computer models into a fully saturated parameterization, and then develop a corresponding specification test procedure. While the simple arithmetic mean of prices of models by year reveals a price decline of about 11% per year, use of a matched model procedure similar to that commonly used by government statistical agencies generates a much larger rate of price decline -- about 20% per year. Since the matched model procedure holds quality constant, it ignores quality change embodied in new models. When data on new and surviving models are used in the estimation of hedonic price equations, a variety of quality-adjusted price indexes can be calculated, with varying interpretations. Although there are some differences, we find that on average these quality-adjusted price indexes decline at about 30% per year, with a particularly large price drop occurring in 1992. Parameters in hedonic price equations for desktop PC models differ from those for mobile PCs. Moreover, quality-adjusted prices fall at a slightly lower AAGR for mobile models (24%) than for desktops (32%). We conclude that taking quality changes into account has an enormous impact on the time pattern of price indexes for PCs.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4549.

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Date of creation: Aug 1995
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Handle: RePEc:nbr:nberwo:4549

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Cited by:
  1. Luigi Guiso & Charles Gottlieb & Andreas Fagereng, 2012. "Asset Market Participation and Portfolio Choice over the Life-Cycle," 2012 Meeting Papers 783, Society for Economic Dynamics.
  2. Benkard, C. Lanier & Bajari, Patrick, 2003. "Hedonic Price Indexes with Unobserved Product Characteristics, and Application to PC's," Research Papers 1841, Stanford University, Graduate School of Business.
  3. Bover, Olympia & Velilla, Pilar, 2002. "Hedonic house prices without characteristics: the case of new multiunit housing," Working Paper Series 0117, European Central Bank.
  4. Bronwyn Hall & Jacques Mairesse & Laure Turner, 2007. "Identifying Age, Cohort, And Period Effects In Scientific Research Productivity: Discussion And Illustration Using Simulated And Actual Data On French Physicists," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 16(2), pages 159-177.
  5. Westland, J. Christopher & See-To, Eric Wing Kuen, 2007. "The short-run price-performance dynamics of microcomputer technologies," Research Policy, Elsevier, vol. 36(5), pages 591-604, June.
  6. John Van Reenen, 2005. "The growth of network computing : quality adjusted price changes for network servers," LSE Research Online Documents on Economics 772, London School of Economics and Political Science, LSE Library.
  7. Silver, Mick, 2000. "Hedonic regressions: an application to VCRs using scanner data," Omega, Elsevier, vol. 28(4), pages 399-408, August.
  8. Deltas, George & Zacharias, Eleftherios, 2006. "Entry order and pricing over the product cycle: The transition from the 486 to the Pentium processor," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1041-1069, September.
  9. Çağlayan Ebru & Arikan Eban, 2011. "Determinants of house prices in Istanbul: a quantile regression approach," Quality & Quantity: International Journal of Methodology, Springer, vol. 45(2), pages 305-317, February.
  10. Mark Doms & Chris Forman, 2003. "Prices for local area network equipment," Working Paper Series 2003-13, Federal Reserve Bank of San Francisco.
  11. Wagner, Todd H. & Hu, Teh-wei & Hibbard, Judith H., 2001. "The demand for consumer health information," Journal of Health Economics, Elsevier, vol. 20(6), pages 1059-1075, November.
  12. Tomat, Gian Maria, 2006. "Prices, product differentiation and quality measurement: A comparison between hedonic and matched model methods," Research in Economics, Elsevier, vol. 60(1), pages 54-68, March.
  13. Stranger, Greg & Greenstein, Shane, 2008. "Pricing in the shadow of firm turnover: ISPs during the 1990s," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 625-642, May.
  14. Christos D. Genakos, 2004. "Differential merger effects: the case of the personal computer industry," LSE Research Online Documents on Economics 6726, London School of Economics and Political Science, LSE Library.
  15. Daniel Melser & Iqbal A. Syed, 2013. "Prices over the Product Life Cycle: Implications for Quality-Adjustment and the Measurement of Inflation," Discussion Papers 2013-26, School of Economics, The University of New South Wales.
  16. Andrés Maroto-Sanchez, 2010. "Growth and productivity in the service sector: The state of the art," Working Papers 07/10, Instituto Universitario de Análisis Económico y Social.

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