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Hedonic Price Indexes for Spreadsheets and an Empirical Test of the Network Extrenalities Hypothesis

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  • Gandal, Neil

Abstract

In this paper, I first estimate and interpret hedonic price equations for computer spreadsheet programs and then use the analysis to empirically test whether network externalities exist in this industry. The results from this study are that consumers are willing to pay a significant premium for spreadsheets that are compatible with the Lotus platform and for spreadsheets that offer links to external data bases, and a smaller premium for spreadsheets that offer local area network compatibility. These results support the hypothesis that the computer spreadsheet market exhibits network externalities. The data also show that with the exception of the "network" features, the qualities most valued by consumers are basic rather than sophisticated. Finally, the quality—adjusted (real) price of computer spreadsheets has fallen by approximately 15 percent per annum over the last five years.

Suggested Citation

  • Gandal, Neil, 1992. "Hedonic Price Indexes for Spreadsheets and an Empirical Test of the Network Extrenalities Hypothesis," Foerder Institute for Economic Research Working Papers 275569, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275569
    DOI: 10.22004/ag.econ.275569
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    File URL: https://ageconsearch.umn.edu/record/275569/files/TEL-AVIV-FSWP-206.pdf
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    1. Gandal, Neil, 1992. "Hedonic Price Indexes for Spreadsheets and an Empirical Test of the Network Extrenalities Hypothesis," Foerder Institute for Economic Research Working Papers 275569, Tel-Aviv University > Foerder Institute for Economic Research.
    2. Gilbert, Richard J, 1992. "Symposium on Compatibility: Incentives and Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 1-8, March.
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    4. Church, Jeffrey & Gandal, Neil, 1993. "Complementary network externalities and technological adoption," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 239-260, June.
    5. Robert J. Gordon, 1987. "The Postwar Evolution of Computer Prices," NBER Working Papers 2227, National Bureau of Economic Research, Inc.
    6. Ernst R. Berndt & Zvi Griliches, 1993. "Price Indexes for Microcomputers: An Exploratory Study," NBER Chapters, in: Price Measurements and Their Uses, National Bureau of Economic Research, Inc.
    7. Murray Foss & Marylin Manser & Allan Young, 1993. "Price Measurements and Their Uses," NBER Books, National Bureau of Economic Research, Inc, number foss93-1, March.
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    9. Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 55-83, March.
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    1. Gandal, Neil, 1992. "Hedonic Price Indexes for Spreadsheets and an Empirical Test of the Network Extrenalities Hypothesis," Foerder Institute for Economic Research Working Papers 275569, Tel-Aviv University > Foerder Institute for Economic Research.

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