Can Chained Price Deflators for High‐Tech Goods Overstate Quality Change?

ABSTRACT This paper argues that chained price indexes for IT goods will typically not account for quality change properly, a problem we call commingling. We illustrate the problem by comparing a chained index to the weighted time product dummy index, where we argue that the latter does not commingle. A comparison of these indexes suggests that the patterns typically seen in prices and expenditure shares over these goods' lifecycles can push the chained Törnqvist index to fall faster than the WTPD index. Our empirical work uses scanner data for five electronic goods and shows that (1) goods in four of our categories display the emblematic patterns (calculators were the exception) and (2) three of those display chained Tornquist indexes that fall substantially faster than the WTPD index (tablets were the exception).