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The Growth of Network Computing: Quality Adjusted Price Changes for Network Servers


  • John Van Reenen


In this paper we investigate the evolution of quality adjusted prices for servers motivated by two facts. First, the productivity acceleration in the US economy since the mid 1990s is closely linked to spread of information technology of which networked computing is a large component. Second, the growth of network computing itself has been fostered by the rapid growth in the quality and quantity of the network server market. Like Pakes' (2003) analysis of the PC market, we show that our preferred version of the hedonic price index ("complete hybrid") fell much more rapidly than the standard "matched model" price index (the hedonic index fell on average by about 30% per annum compared to 17% p.a. for the matched model). This difference is mainly due to the selection bias in the standard matched model price index due to the exit of obsolete models which would have had the fastest price falls.

Suggested Citation

  • John Van Reenen, 2005. "The Growth of Network Computing: Quality Adjusted Price Changes for Network Servers," CEP Discussion Papers dp0702, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0702

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    References listed on IDEAS

    1. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
    2. Ernst R. Berndt & Zvi Griliches & Neal Rappaport, 1993. "Econometric Estimates of Prices Indexes for Personal Computers in the 1990s," NBER Working Papers 4549, National Bureau of Economic Research, Inc.
    3. Ernst R. Berndt & Neal J. Rappaport, 2001. "Price and Quality of Desktop and Mobile Personal Computers: A Quarter-Century Historical Overview," American Economic Review, American Economic Association, vol. 91(2), pages 268-273, May.
    4. Gerard J. Berg, 2006. "Revolutionary Effects of New Information Technologies," Economic Journal, Royal Economic Society, vol. 116(509), pages 10-28, February.
    5. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, vol. 91(1), pages 1-32, March.
    6. Jerome Foncel & Marc Ivaldi, 2005. "Operating System Prices In The Home Pc Market," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 265-297, June.
    7. Jerry A. Hausman & David A. Wise, 1985. "Social Experimentation," NBER Books, National Bureau of Economic Research, Inc, number haus85-1, January.
    8. Ariel Pakes, 2003. "A Reconsideration of Hedonic Price Indexes with an Application to PC's," American Economic Review, American Economic Association, vol. 93(5), pages 1578-1596, December.
    9. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    10. repec:bin:bpeajo:v:27:y:1996:i:1996-3:p:1-83 is not listed on IDEAS
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    More about this item


    hedonic prices; network servers; computers;

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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