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The Postwar Evolution of Computer Prices

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  • Robert J. Gordon

Abstract

This study constructs new hedonic price indexes for electronic computers covering the period 1951-84. Regressions are estimated for four data sets, two used in previous studies by G. Chow and E. Dulberger, and two new data sets used for the first time in this study. Coverage is limited to mainframes until the late 1970s, but includes both " super-mini" computers and personal computers in the 1980s. The end result is a price index that exhibits a 1951 index number, on a base 1984 = 100, of 147,692, implying an annual rate of price change over the 33 years of -19.8 percent. Price changes for personal computer (PC) processors during the 1982-86 period appear to have been similar to those for mainframe computers during the 1977-84 period, in the range of -20 to -25 percent per year. Evidence for PC peripheral equipment is limited to 1984-86 and indicates a faster rate of price decline than for processors, particularly if the increasing availability of "clones" is taken into account. The paper places considerable emphasis on problems of weighting price indexes for computers together with price indexes for other types of "Office, Computing, and Accounting Machinery" (OCA) and other types of producers' durable equipment (PDE). The methodology used to construct the implicit price deflators in the National Income and Product Accounts, with a fixed 1982 base year, leads to a significant downward bias in the implicit OCA and PDE deflators after 1982, and an upward bias prior to 1982. A particularly disturbing aspect of the present national accounts is a spurious rise in the implicit OCA deflator of 157 percent between 1957 and 1971, despite the fact that its computer component exhibits a price decline and its non-computer component increases by only 8 percent. The paper recommends adoption of a chain-linked Laspeyres index number for any price index aggregate that includes computers. A properly weighted PDE deflator, using our computer price index, declines relative to the official implicit PDE deflator by 0.74 percent per year during 1957-72 and 0.87 percent per year during 1972-84.

Suggested Citation

  • Robert J. Gordon, 1987. "The Postwar Evolution of Computer Prices," NBER Working Papers 2227, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2227
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    1. Edward F. Denison, 1957. "Theoretical Aspects of Quality Change, Capital Consumption, and Net Capital Formation," NBER Chapters,in: Problems of Capital Formation: Concepts, Measurement, and Controlling Factors, pages 215-284 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Ernst R. Berndt & Zvi Griliches, 1993. "Price Indexes for Microcomputers: An Exploratory Study," NBER Chapters,in: Price Measurements and Their Uses, pages 63-100 National Bureau of Economic Research, Inc.
    2. Gandal, N., 1992. "Hedonic Price Indexes for Spreadsheets and an Empirical Test of the Network Externalities Hypothesis," Papers 18-92, Tel Aviv.
    3. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, vol. 91(1), pages 1-32, March.
    4. Carlén, Björn, 2002. "Exclusionary Manipulation of Carbon Permit Markets: A Laboratory Test," Research Papers in Economics 2002:15, Stockholm University, Department of Economics.
    5. David M. Byrne & Stephen D. Oliner & Daniel E. Sichel, 2015. "How Fast are Semiconductor Prices Falling?," NBER Working Papers 21074, National Bureau of Economic Research, Inc.
    6. Robert J. Gordon, 2009. "Apparel Prices 1914-93 and the Hulten/Bruegel Paradox," NBER Chapters,in: Price Index Concepts and Measurement, pages 85-128 National Bureau of Economic Research, Inc.
    7. Stuart Macdonald & Pat Anderson & Dieter Kimbel, 2000. "Measurement or Management?: Revisiting the Productivity Paradox of Information Technology," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 69(4), pages 601-617.
    8. Shane M. Greenstein & James B. Wade, 1997. "Dynamic Modeling of the Product Life Cycle in the Commercial Mainframe Computer Market, 1968-1982," NBER Working Papers 6124, National Bureau of Economic Research, Inc.
    9. Steven Caudill & Daniel Gropper, 1997. "A quality-adjusted price index for mainframe computers," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1605-1610.
    10. W. Erwin Diewert, 1995. "Price and Volume Measures in the System of National Accounts," NBER Working Papers 5103, National Bureau of Economic Research, Inc.
    11. Matthew J. Lindquist, 2004. "Capital-Skill Complementarity and Inequality Over the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 519-540, July.
    12. Darrell Parsons & Calvin Gotlieb & Michael Denny, 1993. "Productivity and computers in Canadian banking," Journal of Productivity Analysis, Springer, vol. 4(1), pages 95-113, June.
    13. Timothy F. Bresnahan & Franco Malerba, 1997. "Industrial Dynamics and the Evolution of Firms' and Nations' Competitive Capabilities in the World Computer Industry," Working Papers 97030, Stanford University, Department of Economics.
    14. Meijers, Huub & Hollanders, Hugo, 2003. "Sources of Growth: Measuring the Knowledge Based Economy," Research Memorandum 032, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    15. Steinmueller, W. Edward, 1995. "The U.S. software industry : an analysis and interpretative history," Research Memorandum 006, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    16. Catherine Beaudry, 2006. "Enterprise in orbit: The supply of communication satellites," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(7), pages 679-700.

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