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).
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Adam Copeland & Adam Hale Shapiro, 2010.
"The impact of competition on technology adoption: an apples-to-PCs analysis,"
462, Federal Reserve Bank of New York.
- Adam Hale Shapiro & Adam Copeland, 2010. "The Impact of Competition on Technology Adoption: An Apples-to-PCs Analysis," 2010 Meeting Papers 181, Society for Economic Dynamics.
- 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.
- 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.
- 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.
- Nair, Harikesh S., 2006. "Intertemporal Price Discrimination with Forward-Looking Consumers: Application to the US Market for Console Video-Games," Research Papers 1947, Stanford University, Graduate School of Business.
- Bart Hobijn, 2002. "On both sides of the quality bias in price indexes," Staff Reports 157, Federal Reserve Bank of New York.
- 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 1707-1738, 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.
- 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)
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)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.