The Quality Adjusted Price Index in the Pure Characteristics Demand Model

This paper computes a quality adjusted price index for the personal computer CPU from 1996 to 2000. The index is based on the pure characteristics demand model. I first compute the quality adjusted price index for the whole market, and show that it is very comparable with the hedonic price index but more sensitive to changes in product quality. Two types of the hedonic index are considered. One is the dummy variable index and the other is the formulation in Pakes (2003). When I group consumers by their willingness to pay for attribute improvement, the index shows consumer groups are differently affected by their product choices