Quality-adjusted price indexes for portable computers

Constructing an accurate price index requires controlling for changes in quality. The potential for bias is especially problematic for rapidly changing goods such as computers. This study extends previous research on quality-adjusted, or hedonic, price indexes for computers by investigating price and quality changes in portable models. In particular, recent research by Nelson ct al. (1994) and Berndt et al. (1995) on desktop and portable computers is extended. After adjusting for quality changes, price indexes in this study exhibit average declines of 26% to 33% per year. The magnitude of quality-adjusted price changes is consistent with these authors and with the extensive line of research on quality-adjusted price indexes for computers of various types. The results emphasize the extent of potential bias in estimating price level changes if technological advancement is ignored. Significant potential for bias implies the need to account properly for changes in quality in constructing indexes for both individual product categories and for broad economic indicators.