Quality and price setting of high-tech goods

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.

Automated summary

This study investigates the relationship between product quality and price setting for CPUs. It finds that market fundamentals play a crucial role in explaining price stickiness and dispersion, and that calculations of price inflation need to consider both CPU quality and market fundamentals to ensure accurate pricing. Failure to do so may lead to an understatement of CPU price deflation.