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Constructing a Quality‐Adjusted Price Index for a Heterogeneous Oligopoly

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  • David Prentice
  • Xiangkang Yin

Abstract

Both the theory and practice of using hedonic regressions to remove quality effects in price indexes are implicitly developed for monopolistic competitive markets. In this paper, we theoretically and practically analyse the application of a standard hedonic regression for an oligopoly. In the theoretical work, we recast how for an oligopoly the standard hedonic regression may be unstable. Then in the empirical work, we recommend using the weighted imputation method for constructing an index and estimating separate hedonic regressions for market segments. We apply these recommendations to estimating a quality‐adjusted price index for the Australian passenger vehicle market and find they make a substantial difference.

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  • David Prentice & Xiangkang Yin, 2004. "Constructing a Quality‐Adjusted Price Index for a Heterogeneous Oligopoly," Manchester School, University of Manchester, vol. 72(4), pages 423-442, July.
    • Handle: RePEc:bla:manchs:v:72:y:2004:i:4:p:423-442
    DOI: 10.1111/j.1467-9957.2004.00401.x
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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. repec:ucp:bknber:9780226304557 is not listed on IDEAS
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    10. David Prentice & Xiangkang Yin, 2004. "Constructing a Quality‐Adjusted Price Index for a Heterogeneous Oligopoly," Manchester School, University of Manchester, vol. 72(4), pages 423-442, July.
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    16. David Prentice & Xiangkang Yin, 2000. "Measuring Quality-Adjusted Inflation Rates for a Heterogeneous Oligopoly," Working Papers 2000.06, School of Economics, La Trobe University.
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    Cited by:

    1. David Prentice & Xiangkang Yin, 2004. "Constructing a Quality‐Adjusted Price Index for a Heterogeneous Oligopoly," Manchester School, University of Manchester, vol. 72(4), pages 423-442, July.
    2. Claus Munk & Alexey Rubtsov, 2014. "Portfolio management with stochastic interest rates and inflation ambiguity," Annals of Finance, Springer, vol. 10(3), pages 419-455, August.

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    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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