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A new look at prepackaged software prices.

Compared with information technology products such as computers and semiconductors, software has attracted relatively little economic research. A new working paper from BEA economist Adam Copeland aims to help fill this gap by constructing a new kind of price index for prepackaged software, a growing segment of software investment in the United States.

In his paper "Seasonality and Prepackaged Software Price Indexes" Copeland constructs a seasonally adjusted price index for prepackaged software using detailed and comprehensive scanner data from the NPD Group.

Copeland's approach to constructing the software component of the cost-of-living price index explicitly accounts for consumer heterogeneity. In fact, Copeland documents a large sales surge over winter holidays and finds that this seasonal effect is driven by such consumer heterogeneity.

Using his index and detailed product-level data, he finds that from 1997 to 2003, constant-quality software prices fell at an average annual rate of 16.8 percent.

To demonstrate the importance of properly accounting for consumer heterogeneity, the new index was compared with a Mudgett-Stone price index, a representative-consumer approach to accounting for seasonality. The comparison showed substantial differences in the estimates of constant-quality annual price declines.

Constructing a price index that properly accounts for the seasonality in software purchases is important for accurately measuring real personal consumption expenditures on prepackaged software.

The paper is available on the BEA Web site at papers/working_papers.htm.
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Title Annotation:Taking Account ...
Publication:Survey of Current Business
Article Type:Brief article
Geographic Code:1USA
Date:Mar 1, 2009
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