Price Indexes for Microcomputers: An Exploratory Study

In this paper we focus on alternative procedures for calculating and interpreting quality-adjusted price indexes for microcomputers, based on a variety of estimated hedonic price equations. Our data set comprises an unbalanced panel for 1265 model observations from 1982 to 1988, and includes both list and discount prices. We develop and implement empirically a specification test for selecting preferable hedonic price equations, and consider in detail the alternative interpretations of dummy variable coefficients having time and age, vintage and age, and all of the time, age, and vintage dummy variables as regressors. We then calculate a variety of quality-adjusted price indexes; for the Divisja indexes we employ estimated hedonic price equations to predict prices of unobserved models (pre-entry and post-exit). Although our indexes show a modest amount of variation, we find that on average over the 1982-88 time period in the US, quality-adjusted real prices for microcomputers decline at about 28% per year.