An Elementary Price Index for Internet Service Providers in Canada: A Hedonic Study

It is well known that late introduction of new Products into the CPI leads to an upward bias in the index. Moreover, improper treatment of quality improvement in the product will add to the upward bias. In this paper a hedonic elementary price index for accessing the Internet in Canada is constructed. We find that the quality-adjusted price index declines at about 15% per year. Detailed data are readily available on-line so that costs of implementation are moderate. We discuss the use of different functional forms in the regression, their ease of use and performance, and compare the resulting index with the matched model approach. Some problems in using the Box-Cox transformation and in handling packages with unlimited access are also discussed. JEL Classification: C43, C52, E31, L86