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Measuring Quality-Adjusted Inflation Rates for a Heterogeneous Oligopoly

Author

Listed:
  • David Prentice

    (School of Economics, La Trobe University)

  • Xiangkang Yin

    (School of Economics, La Trobe University)

Abstract

Both the theory and practice of using hedonic regressions to quality adjust inflation estimates are implicitly developed for monopolistic competitive markets. We demonstrate conditions required for consistent OLS estimation of hedonic regression for an oligopoly. To reflect firm heterogeneity, we make two recommendations on empirical practice. The first is to use quantity weights in constructing the index rather than the unsatisfactory equal weighting system implicit in the standard pooled regression. Second, to test for instability across product type, as well as over time. Implementing these recommendations results in higher estimates of inflation, similar to official quality-adjusted inflation rate.

Suggested Citation

  • David Prentice & Xiangkang Yin, 2000. "Measuring Quality-Adjusted Inflation Rates for a Heterogeneous Oligopoly," Working Papers 2000.06, School of Economics, La Trobe University.
    • Handle: RePEc:trb:wpaper:2000.06
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    References listed on IDEAS

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    2. David Prentice & Xiangkang Yin, 2004. "Constructing a Quality‐Adjusted Price Index for a Heterogeneous Oligopoly," Manchester School, University of Manchester, vol. 72(4), pages 423-442, July.

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    Keywords

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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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