IDEAS home Printed from https://ideas.repec.org/p/bea/wpaper/0062.html
   My bibliography  Save this paper

Implications of Consumer Heterogeneity on Price Measures for Technology Goods

Author

Listed:
  • Adam Hale Shapiro
  • Ana Aizcorbe

    (Bureau of Economic Analysis)

Abstract

Using a new dataset on household purchases of personal computers (PCs), we document positive correlations between buyers' incomes and the prices they pay for seemingly identical PCs. These results suggest that ¯rms may be successful at separating the market and charging di®erent prices to consumers with di®erent levels of willingness to pay. We consider the implications of this kind of market separation for price and quality measurement via a theoretical model based on Mussa and Rosen (1978). The model suggests that, in markets like these, stan- dard methods that do not account for this heterogeneity can understate in°ation in a cost-of-living context. Consistent with the model, our empirical work shows that controlling for income yields indexes that show slower price declines than seen in standard indexes. This understatement of the cost-of-living measure likely mit- igates the unrelated upward biases found in recent studies by Bils (2009), Erickson and Pakes (2010), Broda and Weinstein (2010).

Suggested Citation

  • Adam Hale Shapiro & Ana Aizcorbe, 2010. "Implications of Consumer Heterogeneity on Price Measures for Technology Goods," BEA Working Papers 0062, Bureau of Economic Analysis.
  • Handle: RePEc:bea:wpaper:0062
    as

    Download full text from publisher

    File URL: https://www.bea.gov/papers/pdf/Shapiro_Aizcorbe1_aug10.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Adam Copeland & Adam Hale Shapiro, 2010. "The impact of competition on technology adoption: an apples-to-PCs analysis," Staff Reports 462, Federal Reserve Bank of New York.
    2. Nelson, Randy A & Tanguay, Tim L & Patterson, Christopher D, 1994. "A Quality-Adjusted Price Index for Personal Computers," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(1), pages 23-31, January.
    3. Harikesh Nair, 2007. "Intertemporal price discrimination with forward-looking consumers: Application to the US market for console video-games," Quantitative Marketing and Economics (QME), Springer, vol. 5(3), pages 239-292, September.
    4. Bart Hobijn, 2002. "On both sides of the quality bias in price indexes," Staff Reports 157, Federal Reserve Bank of New York.
    5. Carol Corrado & Wendy E. Dunn & Maria Ward Otoo, 2006. "Incentives and prices for motor vehicles: what has been happening in recent years?," Finance and Economics Discussion Series 2006-09, Board of Governors of the Federal Reserve System (U.S.).
    6. Tim Erickson & Ariel Pakes, 2011. "An Experimental Component Index for the CPI: From Annual Computer Data to Monthly Data on Other Goods," American Economic Review, American Economic Association, vol. 101(5), pages 1707-1738, August.
    7. Ana Aizcorbe, 2006. "Why Did Semiconductor Price Indexes Fall So Fast in the 1990s? A Decomposition," Economic Inquiry, Western Economic Association International, vol. 44(3), pages 485-496, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marco Cornia & Kristopher S. Gerardi & Adam Hale Shapiro, 2012. "Price Dispersion Over the Business Cycle: Evidence from the Airline Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 60(3), pages 347-373, September.
    2. Copeland, Adam & Shapiro, Adam Hale, 2013. "Price Setting in an Innovative Market," Working Paper Series 2013-04, Federal Reserve Bank of San Francisco.
    3. Marco Cornia & Kristopher S. Gerardi & Adam Hale Shapiro, 2010. "Consumer Heterogeneity and Markups over the Business Cycle: Evidence from the Airline Industry," BEA Working Papers 0056, Bureau of Economic Analysis.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bea:wpaper:0062. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bryn Whitmire). General contact details of provider: http://edirc.repec.org/data/beagvus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.