<the fallacy of hedonic pricing is of course easily exposed by common sense: let us assume you are now using a processor that is twice as fast as its predecessor and are typing a letter in MS word. <
Heinz, I find this discussion very interesting and thought provoking. Like many others I cringe every time I hear the phrase "new economy"(fortunately, its now not as often as a few months ago) and I also see the "bubble" that you and others do.
However, I'm not so sure that demonizing hedonic pricing is fully deserved. In your excellent post you write about "real" economic output, versus what I will call "imagined" output. You seem to be saying that the value of output should be determined by the use that the goods are put to, not their theortical capabilities. The PC is the most egregious example of "imaginged" value. Of course, it should be noted that when it comes to PC's, there are servers and desktops and the increases in processing power, storage capability, storage access times, etc., do have direct and very real productivity gains in the case of servers.
But, in a bigger sense I have problem simply bashing hedonic pricing, because I don't see a clear alternative. Let me give you an example:
Let's look at automobiles. In 1992 the average price of a U.S. manufactured vehicle was about $18K. Today its nearly $25K(these are not precise figures). The bulk of the difference is that there are hugely more SUV's and expensive light trucks sold today than in '92. The cost to manufacture these monsters is not very much greater than the cost to manufacture a standard car(about $1000-$1500), so the difference is simply in margin to the auto company's, dealers, etc.
Now, how should we measure this type of economic activity? On the surface, it would appear that there is a great deal of productivity improvement, no? Much more revenue per hour of labor and per unit cost of material. But, if I follow your argument, since these vehicles are basically used for the same purpose that cars are(they carry people to work and around town, but, 90% have never been used in 4x4 mode or used offroad) we shouldn't consider the increase in revenues from these vehicles to be a real increase in "output", should we?
Of course, you may say that since people are willing to pay more for these things it is a real increase, even though their utilization is unchanged from the old model. But, then this becomes a "price" argument. More powerful and capable PC's shouldn't be treated any differently than older, slower ones because the price didn't change, but, more powerful and capable cars should be because the price did change?
I'm not sure if I'm making my point clearly here... What I'm trying to say is that simply bashing hedonic pricing because it assumes value based upon capabilities that may or may not be "real" can be extended to all kinds of things. I could have used housing instead of cars(above) and made a similar case...
Your thoughts?
WTS |
