Quality Adjustment at Scale: Hedonic vs. Exact Demand-Based Price Indices
June 2023
Working Paper Number:
CES-23-26
Abstract
This paper explores alternative methods for adjusting price indices for quality change at scale. These methods can be applied to large-scale item-level transactions data that in cludes information on prices, quantities, and item attributes. The hedonic methods can take into account the changing valuations of both observable and unobservable charac teristics in the presence of product turnover. The paper also considers demand-based approaches that take into account changing product quality from product turnover and changing appeal of continuing products. The paper provides evidence of substantial quality-adjustment in prices for a wide range of goods, including both high-tech consumer products and food products.
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demand,
econometric,
market,
quantity,
sale,
cost,
product,
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prices product,
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valuation,
retailer,
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