A Quality-Adjusted Price Index for Personal Computers

Abstract

This study estimates quality-adjusted price indexes for personal computers. Three separate hedonic models are estimated using data from 1,841 personal computers over the period 1984–1991. In addition to the traditional linear model, a nonlinear model is developed and estimated. The nonlinear model is parsimonious in parameters, allows time-varying attribute prices, and can be estimated using a pooled data set. The results indicate that nominal quality-adjusted prices of mail-order firms declined at an average annual rate of 24.62%; quality-adjusted prices of major manufacturers declined at a slower rate.