Implications of Consumer Heterogeneity on Price Measures for Technology Goods
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).
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- Adam Copeland & Adam Hale Shapiro, 2010.
"The Impact of Competition on Technology Adoption: An Apples-to-PCs Analysis,"
BEA Working Papers
0063, Bureau of Economic Analysis.
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- 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.
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Quantitative Marketing and Economics,
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- 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.).
- 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 1707-38, August.
- Timothy Erickson & Ariel Pakes, 2008. "An Experimental Component Index for the CPI: From Annual Computer Data to Monthly Data on Other Goods," NBER Working Papers 14368, National Bureau of Economic Research, Inc.
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