Measuring Consumer Welfare in the CPU Market: An Application of the Pure Characteristics Demand Model
Posted: 26 Feb 2009 Last revised: 30 Dec 2009
Date Written: June 1, 2007
In this article, I estimate demand for the personal computer central processing unit and measure consumer welfare using the pure characteristics demand model. The model is based on a quasilinear utility function with multiplicative random variables and does not have the idiosyncratic logit error term, so that consumer welfare directly reflects consumers' valuation of product characteristics. Welfare calculations show that consumer surplus comprises approximately 90% of total social surplus and that large welfare gains have resulted from the introduction of new products.
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