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Econometric Estimates of Prices Indexes for Personal Computers in the 1990s

Author

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  • Ernst R. Berndt
  • Zvi Griliches
  • Neal Rappaport
Abstract
In this paper we construct a number of quality-adjusted price indexes for personal computers in the U.S. marketplace over the 1989- 92 time period. We generalize earlier work by incorporating simultaneously the time, age and vintage effects of computer models into a fully saturated parameterization, and then develop a corresponding specification test procedure. While the simple arithmetic mean of prices of models by year reveals a price decline of about 11% per year, use of a matched model procedure similar to that commonly used by government statistical agencies generates a much larger rate of price decline -- about 20% per year. Since the matched model procedure holds quality constant, it ignores quality change embodied in new models. When data on new and surviving models are used in the estimation of hedonic price equations, a variety of quality-adjusted price indexes can be calculated, with varying interpretations. Although there are some differences, we find that on average these quality-adjusted price indexes decline at about 30% per year, with a particularly large price drop occurring in 1992. Parameters in hedonic price equations for desktop PC models differ from those for mobile PCs. Moreover, quality-adjusted prices fall at a slightly lower AAGR for mobile models (24%) than for desktops (32%). We conclude that taking quality changes into account has an enormous impact on the time pattern of price indexes for PCs.

Suggested Citation

  • 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.
    • Handle: RePEc:nbr:nberwo:4549
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    1. repec:ucp:bknber:9780226304557 is not listed on IDEAS
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    2. Jr., José Tavares de Araujo, 1998. "Transaction costs and regional trade," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 52(0), January.
    3. John Van Reenen, 2006. "The Growth of Network Computing: Quality-Adjusted Price Changes for Network Servers," Economic Journal, Royal Economic Society, vol. 116(509), pages 29-44, February.
    4. Deltas, George & Zacharias, Eleftherios, 2006. "Entry order and pricing over the product cycle: The transition from the 486 to the Pentium processor," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1041-1069, September.
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    6. Genakos, Christos D., 2004. "Differential merger effects: the case of the personal computer industry," LSE Research Online Documents on Economics 6726, London School of Economics and Political Science, LSE Library.
    7. Stranger, Greg & Greenstein, Shane, 2008. "Pricing in the shadow of firm turnover: ISPs during the 1990s," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 625-642, May.
    8. Olympia Bover & Pilar Velilla, 2001. "Hedonic house prices without characteristics: the case of new multiunit housing," Estudios Económicos, Banco de España;Estudios Económicos Homepage, number 73, June.
    9. Mellander, Erik & Savvidiou, Eleni & Gunnarsson, Gudmundur, 2001. "Is Human Capital the Key to the IT Productivity Paradox?," Working Paper Series 551, Research Institute of Industrial Economics.
    10. Wagner, Todd H. & Hu, Teh-wei & Hibbard, Judith H., 2001. "The demand for consumer health information," Journal of Health Economics, Elsevier, vol. 20(6), pages 1059-1075, November.
    11. Benkard, C. Lanier & Bajari, Patrick, 2003. "Hedonic Price Indexes with Unobserved Product Characteristics, and Application to PC's," Research Papers 1841, Stanford University, Graduate School of Business.
    12. Silver, Mick, 2000. "Hedonic regressions: an application to VCRs using scanner data," Omega, Elsevier, vol. 28(4), pages 399-408, August.
    13. Çağlayan Ebru & Arikan Eban, 2011. "Determinants of house prices in Istanbul: a quantile regression approach," Quality & Quantity: International Journal of Methodology, Springer, vol. 45(2), pages 305-317, February.
    14. Swei, Omar & Gillen, David & Onayev, Anuarbek, 2021. "Improving productivity measures of producing transportation infrastructure using quality-adjusted price indices," Transport Policy, Elsevier, vol. 114(C), pages 372-381.
    15. Westland, J. Christopher & See-To, Eric Wing Kuen, 2007. "The short-run price-performance dynamics of microcomputer technologies," Research Policy, Elsevier, vol. 36(5), pages 591-604, June.
    16. Doms, Mark & Forman, Chris, 2005. "Prices for local area network equipment," Information Economics and Policy, Elsevier, vol. 17(3), pages 365-388, July.
    17. Daniel Melser & Iqbal A. Syed, 2013. "Prices over the Product Life Cycle: Implications for Quality-Adjustment and the Measurement of Inflation," Discussion Papers 2013-26, School of Economics, The University of New South Wales.
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    More about this item

    JEL classification:

    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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