- * We would like to thank Kevin Fox, Steven Kennedy Darcy McCormack and participants at seminars at the Australian Bureau of Statistics, the 1999 Conference of Economists, La Trobe University, RSSS at the ANU, and UNSW for their constructive comments. This project is funded in part from a Small ARC Grant and a Grant from the Faculty of Law and Management. Some work was done by D. Prentice at RSSS in January 2000 and he is most appreciative for their hospitality. 1. The theory is equally applicable to markets for inputs. Indifference curves are re-interpreted as isoprofit curves of purchasers. 2. Most commodities have more than one quality characteristic so that U(p, q) = u actually defines an indifference surface in a (p, q)-space. This is referred to as an indifference curve for convenience. It is also applicable to the offer curves and equilibrium loci below.
Paper not yet in RePEc: Add citation now
- 3. For more detailed discussion, see Rosen (1974) which is an excellent reference laying concrete theoretical base for the indifference curves, offer curves and equilibrium. 4. Subscript j indexes the firm or variant while subscript k indexes the kâs element of characteristics vector q. So, qj is a vector but qk is a number and qkj is the kth element of vector qj. 5. In case of discrete characteristics variables, kss qp ââ should be understood as a price jump on ps(q).
Paper not yet in RePEc: Add citation now
- 6. The third method is the characteristics price method; see Dulberger (1989) and Triplett (1989). 7. For the single period regression, quality-adjusted prices are estimated and directly placed in an index. 8. Without demonstration of method, Griliches indicates that âwe should use a weighted regression approach, since we are interested in an estimate of a weighted average of the pureprice change, rather than just an unweighted average over all possible models, no matter how peculiar or rare.â Raff and Trajtenberg admit that they have not considered weights because of the lack of quantity data. 9. The number of characteristics is reduced from 126 by eliminating characteristics that are (1) bundles of other characteristics (2) exclusive to one make (3) Creating Size by multiplying Length by Width. Prices are list rather than transaction prices â though reporting transaction prices for a product featuring haggling would have to be done carefully to avoid introducing other biases.
Paper not yet in RePEc: Add citation now
Abraham, Katharine G., John S. I. Greenlees, and Brent R. Moulton, âWorking to Improve the Consumer Price Indexâ, Journal of Economic Perspectives, 12, (Winter 1998), 27 â 36.
- Anderson, Simon P., Andre de Palma, and Jacques-Francois Thisse, Discrete Choice Theory of Product Differentiation, (Cambridge MA and London: MIT Press, 1992).
Paper not yet in RePEc: Add citation now
Arguea, Nestor M. and Cheng Hsiao, Econometric Issues of Estimating Hedonic Price Functions, Journal of Econometrics, 56, (March 1993), 243 â 267.
- Belsley, David. A., Conditioning diagnostics: collinearity and weak data in regression, (New York NY: John Wiley & Sons, 1991).
Paper not yet in RePEc: Add citation now
Berry, Steven, James A. Levinsohn and Ariel Pakes, âAutomobile Prices in Market Equilibriumâ, Econometrica, 63, (July 1995), 841 â 890.
Boskin, Michael J., Ellen R. Dulberger, Robert J. Gordon, Zvi Griliches, and Dale W. Jorgenson, âConsumer Prices, the Consumer Price Index, and the Cost of Living,â Journal of Economic Perspectives, 12, (Winter 1998), 3 â 26.
Bresnahan, Timothy F., âCompetition and Collusion in the American Automobile Industry: The 1955 Price Warâ, Journal of Industrial Economics, 35, (June 1987), 457 â 482.
Caplin, Andrew and Nalebuff, Barry, âAggregation and Imperfect Competition: On the Existence of Equilibrium,âEconometrica, 59, (January 1991), 26 â 61.
- Chandler, Alfred D., Jr., Strategy and Structure, (Cambridge MA: MIT Press, 1962) Chow, Gregory, âTechnological Change and the Demand for Computers,â American Economic Review, 57, (December 1967), 1117 â 1130.
Paper not yet in RePEc: Add citation now
- Court, Andrew T., âHedonic Price Indexes with Automotive Example,â in The Dynamics of Automobile Demand, (New York NY: General Motors Corporation, 1939), 99 â 117.
Paper not yet in RePEc: Add citation now
Cowling, Keith and John Cubbin, âHedonic Price Indexes for United Kingdom Carsâ, Economic Journal, 82, (September 1972), 963 â 978.
Cropper, Maureen L., Leland B. Deck, and Kenneth E. McConnell, âOn the Choice of Functional Form for Hedonic Price Functionsâ, Review of Economics and Statistics, 70, (November 1988), 668 â 675.
- Dhrymes, Phoebus J., âPrice and Quality Changes in Consumer Capital Goods; An Empirical Studyâ, Chapter Three in Zvi Griliches, (ed.), Price Indexes and Quality Change: Studies in New Methods of Measurement, (Cambridge MA: Harvard University Press, 1971), 88 â 149.
Paper not yet in RePEc: Add citation now
- Dulberger, Ellen R., âThe Application of a Hedonic Model to a Quality-Adjusted Price Index for Computer Processorsâ, in Dale W. Jorgenson and Ralph Landau (eds.), Technology and Capital Formation, (Cambridge MA: MIT Press, 1989), 37 â 76.
Paper not yet in RePEc: Add citation now
Feenstra, Robert, âExact Hedonic Price Indicesâ, Review of Economics and Statistics, 77, (November 1995), 634 â 653.
- Glassâs Guide, Black and white Data book, (Melbourne VIC Australia: Glassâs Guide, 1990 â 1998).
Paper not yet in RePEc: Add citation now
Gordon, Robert, The Measurement of Durable Goods Prices, (Chicago IL: University of Chicago Press, 1990).
Griliches, Zvi, âHedonic Price Indexes for Automobiles: An Econometric Analysis of Quality Change,â in The Price Statistics of the Federal Government, General Series No. 73, (New York NY: Columbia University Press for the National Bureau of Economic Research, 1961), 137-196. Reprinted in Zvi Griliches, ed., Price Indexes and Quality Change: Studies in New Methods of Measurement, (Cambridge, MA: Harvard University Press, 1971), 55 â 87.
- Griliches, Zvi, âIntroduction: Hedonic Price Indexes Revisited,â in Zvi Griliches, ed., Price Indexes and Quality Change: Studies in New Methods of Measurement, (Cambridge, MA: Harvard University Press, 1971), 3 â 15.
Paper not yet in RePEc: Add citation now
Judd, Kenneth L., âCredible Spatial Preemption,â Rand Journal of Economics, 16, (Summer 1985), 153 â 166.
- Moulton, Brent R., Timothy J. LaFleur and Karin E. Moses, âResearch on Improved Quality Adjustment in the CPI: The Case of Televisions,â mimeo, (Bureau of Labor Statistics, 1997).
Paper not yet in RePEc: Add citation now
Murray, Jonathon, and Nicholas Sarantis, Price-Quality Relations and Hedonic Price Indexes for Cars in the United Kingdom, International Journal of the Economics of Business, 6, (February 1999), 5 â 27.
- Ohta, Makoto and Zvi Griliches, Automobile Price Revisited: Extension of the Hedonic Hypothesis, in Nestor E. Terleckyj, ed., Household Production and Consumption, (New York NY: NBER, 1975), 325 â 390.
Paper not yet in RePEc: Add citation now
- Raff, Daniel and Manuel Trajtenberg, âQuality-Adjusted Prices for the American Automobile Industry: 1906-1940â, in Timothy Bresnahan and Robert Gordon, eds., The Economics of New Goods, (Chicago IL: University of Chicago Press, 1997), 71 â 101.
Paper not yet in RePEc: Add citation now
Rosen, Sherwin, âHedonic Prices and Implicit Markets: Product Differentiation in Pure Competitionâ, Journal of Political Economics, 82, (January/February 1974), 34 â 55.
Schmalensee, Richard, âEntry Deterrence in the Ready-to-Eat Breakfast Cereal Industry,â Bell Journal of Economics, 9, (Autumn 1978), 305 â 327.
- Shiratsuka, Shigenori, âAutomobile Price and Quality Changes: A Hedonic Price Analysis of the Japanese Automobile Market,â Bank of Japan Monetary and Economic Studies, 13, (December 1995b), 1 â 44.
Paper not yet in RePEc: Add citation now
- Shiratsuka, Shigenori, âEffects of Quality Changes on the Price Index: A Hedonic Approach to the Estimation of a Quality Adjusted Price Index for Personal Computers in Japan.â Bank of Japan Monetary and Economic Studies, 13, (July 1995a), 17 â 52.
Paper not yet in RePEc: Add citation now
Silver, M., âAn Evaluation of the Use of Hedonic Regressions for Basic Components of Consumer Price Indicesâ, Review of Income and Wealth, 45, (March 1999), 41 â 56.
Thompson, R. R., âNew Entry and Hedonic Price Discounts: The Case of the Irish Car Market,âOxford Bulletin of Economics and Statistics, 49, (November 1987), 373 â 384.
Tirole, Jean, The Theory of Industrial Organization, (Cambridge MA: MIT Press, 1988).
Triplett, Jack E., âAutomobiles and Hedonic Quality Measurement,â Journal of Political Economy, 77, (May/June 1969), 408 â 417.
- Triplett, Jack E., âHedonic Methods in Statistical Agency Environments: An Intellectual Biopsyâ, in Ernst R. Berndt and Jack E. Triplett (eds.) Fifty Years of Economic Measurement: The Jubilee of the Conference on Research in Income and Wealth, (Chicago, IL: University of Chicago Press, 1990), 207 â 233.
Paper not yet in RePEc: Add citation now
- Triplett, Jack E., âPrice and Technological Change in a Capital Good: A Survey of Research on Computersâ, in Dale W. Jorgenson and Ralph Landau (eds.) Technology and Capital Formation, (Cambridge, MA: MIT Press, 1989), 127 â 214.
Paper not yet in RePEc: Add citation now
Triplett, Jack E., and Richard J. McDonald, âAssessing the Quality Error in Output Measures: The Case of Refrigeratorsâ, Review of Income and Wealth, 23, (June 1977) 137 â 156. p p(q) F2(p, q, Ã2) E2 U2(p, q, u2) F1(p, q, Ã1) E1 U1(p, q, u1) q FIGURE 1.â EQUILIBRIUM LOCUS OF PRICE-QUALITY COMBINATIONS p ps(q) pt(q) pjs jsp pjt qjt qjs q FIGURE 2.â DECOMPOSITION OF PRICE CHANGE INTO QUALITY DRIVEN AND INFLATIONARY COMPONENTS Footnotes.