New study reveals how quality-adjusted prices impact consumer purchasing power.
The article compares different methods for measuring quality-adjusted price indexes in the context of product differentiation. By analyzing how prices are determined by firms, the researchers found that hedonic price indexes provide a range of quality-adjusted price changes. The Laspeyres index gives a lower bound, while the Paasche index gives an upper bound. These findings were compared with matched model indexes, and the study focused on personal computer prices in Italy from 1995 to 2000.