2 Price Indexes for Microcomputers: An Exploratory Study

In recent years, a considerable amount of research has focused on the con-struction and interpretation of price indexes for computers. ’ The computer market is a fascinating one, for technological change has been rapid, there has been a great deal of entry and exit of firms and models, and, particularly in the microcomputer market, models have been simultaneously sold at different prices by standard retail and discount vendors. Because of the rapid technological change and turnover of models and firms, Fisher, McGowan, and Greenwood (1983) have characterized the main-frame computer market as typically being in “disequilibrium. ” One conse-quence of this is that price indexes have been used for two rather different purposes, one to deflate expenditures or purchases into constant dollars, and the other to trace out movements in a technological frontier, such as a price-performance ratio. If quality-adjusted prices reacted instantaneously and fully to the introduc-tion of new technology, then an index that traced out the technological frontier