Price indexes for PC database software and the value of code compatibility

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in December 1996Keywords: price indexes, hedonic methods, technical change AbstractChanging product quality poses a challenge for the computation of price indexes, in particular in technologically advanced industries. We assess the differences between traditional and quality-corrected indexes by computing hedonic and matched-model price indexes for personal computer database software. Our database covers the price development in Germany from 1986 to 1994. Quality-adjusted software prices decline by 7.4 percent according to our hedonic index. Surprisingly, a matchedmodel index based on linking the prices of directly comparable program versions decreases even faster than the hedonic index (9.3 percent). This unusual result is apparently caused by the simultaneous selling of old and new versions of a given software product. The estimation results also confirm the importance of network effects. Code compatibility, i.e. the capability of executing programs written for the dominant database product, yields a significant price premium. The ability to read and write data in the dominant spreadsheet format (file compatibility) is also associated with higher prices, but the price differential is much smaller than in the 2 case of code compatibility. 3 Non-Technical SummaryThe computation of price indexes is often considered a rather mundane and boring task in economics. Yet, given the importance that is attached to the use of price indexes in economic policy decision-making, it is obviously an important one. In the context of goods with changing product quality, it can often be a complex task, too, since it is difficult to seperate quality changes from the pure time component in price series. To study the implications of various methods used in the computation of price indexes, this paper presents empirical evidence for a rather narrowly defined group of software products: PC-based database software. We consider several types of indexes in this paper and explore how the results are affected by changes in the computations.Our database covers the price development in Germany from 1986 to 1994. Qualityadjusted software prices decline by 7.4 percent according to our hedonic index. Surprisingly, a matched-model index based on linking the prices of directly comparable program versions decreases even faster than the hedonic index (9.3 percent). This is an unusual result, since most previous studies find that matchedmodel indexes typically understa...

Innovation and Information Technology in Services

“…Network effects are of growing importance. This is confirmed by a recent study of Harhoff and Moch (1996) which implies that network effects increase with the level of compatibility. This points towards larger IT-productivity gains today than in the past.…”

“…This also can explain our large PC productivity. This hypothesis is also supported by Harhoff and Moch (1996) who find significant price premia for compatibility for packaged PC database software that are positively correlated with the degree of compatibility.…”

ICT Prices and ICT Services: What do they tell us about Productivity and Technology?

“…This suggests there could be large price declines in the systems software in wide use today, but we cannot really know without additional research. The implied systems software component in the PPI in fact drops relatively rapidly, and while its incorporation in an ICT asset price index is a major step forward (sales of systems software accounted for about 47 percent of all domestically-produced software product sales in the United States in 2013 and 2014, according to the Census Bureau's 2014 Services Annual Survey), its impact on the new price index for enterprise software is partially offset by the rising PPI for enterprise and network application 21 One study available to Parker and Grimm (Harhoff and Moch, 1997) covered a PC database platform for business applications, but prices for PC desktop operating systems were not studied until much later (Abel et al, 2007;Copeland, 2013). As discussed in the supplemental paper, systems software includes enterprise databases as well as operating systems.…”

Price Indexes for Microsoft's Personal Computer Software Products

“…Some indexes weight all prices equally (called "unweighted" indexes) while others use distinct and unequal weights for different products (called "weighted" indexes). 6 The best-known weighted index number formulae used for making price comparisons over time are the Laspeyres, Paasche, and Fisher price indexes.…”