Getting smart about phones: new price indexes and the allocation of spending between devices and services plans in Personal Consumption Expenditures

Abstract

This paper addresses two measurement issues for mobile phones. First, we develop a new mobile phone price index using hedonic quality-adjusted prices for smartphones and a matched-model index for feature phones. Our index falls at an average annual rate of 17 percent during 2010-2018, close to the rate of decline in the price index used in the GDP Accounts. Given relatively flat average prices over this period, our index points to substantial quality improvement. Second, we propose a methodology to disentangle purchases of phones and wireless services when they are bundled together as part of a long-term service contract. Getting the allocation right is especially important for real PCE because the price deflators for phones and wireless services exhibit very different trends. Our adjusted estimates suggest that real PCE spending currently captured in the category Cellular Phone Services increased 4 percentage points faster than is reflected in published data.

Hard Numbers: Open Consumer Price Database

“…As a result, recording the same price for a model of mobile phones over a number of years can lead to bias in estimates of inflation indices (for a detailed discussion, see Aizcorbe et al, 2020). The discussion by Silver and Heravi (2005) provides a central bank perspective on such recording of prices.…”

Quality and price setting of high-tech goods

“…However, this approach ignores the fact that prices are also affected by other factors, such as market and product characteristics. 14 We follow the common approach in the existing literature (see e.g., Byrne et al, 2018;Aizcorbe et al, 2020) and run the hedonic regression for each pair of consecutive years in our sample.…”

“…Finally, this study is related to the strand of literature that focuses on constructing hedonic price indices (see e.g., Shiratsuka, 1999;Kryvtsov, 2016;Byrne et al, 2020), especially for computing devices (e.g., Pakes, 2003;Aizcorbe et al, 2020) and computer components (e.g., Byrne et al, 2018). We complement this strand of literature by introducing an improved, direct measure of product quality for a larger set of CPUs to construct the quality-adjusted price indices.…”

The increasing deflationary influence of consumer digital access services

“…14 Aizcorbe, Byrne and Sichel (2019) identified spending on equipment included in mobile phone services spending recorded in the national accounts. BEA now incorporates mobile phone prices in their estimate of mobile phone service spending to account for this portion of spending.…”