The Quality Adjusted Price Index in the Pure Characteristics Demand Model

30 Pages Posted: 26 Feb 2009 Last revised: 30 Dec 2009

See all articles by Minjae Song

Minjae Song

Bates White Economic Consulting

Date Written: May 1, 2008

Abstract

This paper computes a quality adjusted price index for the personal computer CPU from 1996 to 2000. The index is based on the pure characteristics demand model. I first compute the quality adjusted price index for the whole market, and show that it is very comparable with the hedonic price index but more sensitive to changes in product quality. Two types of the hedonic index are considered. One is the dummy variable index and the other is the formulation in Pakes (2003). When I group consumers by their willingness to pay for attribute improvement, the index shows consumer groups are differently affected by their product choices.

Keywords: Discrete Choice Model of Demand, New Product, Consumer Surplus

JEL Classification: C43, D60, L63, O30

Suggested Citation

Song, Minjae, The Quality Adjusted Price Index in the Pure Characteristics Demand Model (May 1, 2008). Journal of Business and Economic Statistics, Vol. 28, No. 1, pp. 190–199, January 2010, Simon School Working Paper No. FR 09-04, Available at SSRN: https://ssrn.com/abstract=1342759

Minjae Song (Contact Author)

Bates White Economic Consulting ( email )

1300 I Street NW
Washington, DC DC 20005
United States
2027471404 (Phone)

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