Price Deflators for High Technology Goods and the New Buyer Problem

Some items in a household’s market basket, notably durable goods, are purchased only occasionally. In contrast, standard price measures implicitly assume that consumers purchase some amount of every available good in every period. The occasional purchase of an existing good by a new buyer generates a “new buyer” problem that is similar to the traditional “new goods” problem generated by the entry of new goods. This paper uses an idea introduced by Fisher and Griliches (1995) and Griliches and Cockburn (1995) to develop price indexes for goods that are not purchased in each period. A comparison of the resulting price indexes with those calculated under the standard assumption suggests that the sharp declines typically exhibited by price indexes for many high technology goods may be overstated. However, it is impossible to make any definitive statements about the numerical magnitude of this potential problem. These preliminary findings simply underscore the importance of further research to study this problem for high tech goods and to explore the possibility that similar problems may arise for other durable goods.