Working Paper: NBER ID: w28390
Authors: Yuriy Gorodnichenko; Oleksandr Talavera; Nam Hoai Vu
Abstract: This paper investigates the link between product quality and price setting for central processing units (CPUs). Using thousands of price quotes from a popular price-comparison website, we find that market fundamentals, such as the number of sellers, median price, share of convenient prices and level of seller stability, are important factors for explaining price stickiness and price dispersion. We demonstrate that calculations of price inflation require conditioning not only on CPU quality, but also on market fundamentals to ensure that CPU attributes are priced correctly. Failing to do so can result in an understatement of CPU price deflation in the sample period.
Keywords: price stickiness; price dispersion; hedonic pricing; CPUs; market fundamentals
JEL Codes: E31; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market fundamentals (G10) | price stickiness (L11) |
| market fundamentals (G10) | price dispersion (L11) |
| number of sellers (D49) | price stickiness (L11) |
| CPU quality (L15) | price deflation (E31) |
| innovation (O35) | price adjustments of older CPU models (E31) |
| market fundamentals (G10) | estimated inflation rates (E31) |
| CPU quality + market fundamentals (L15) | price behavior (D40) |