Hedonic qualIty adjustment is a method used by economists to adjust prices whenever the characteristics of the products included in the consumer price index change because of innovation. Hedonic quality adjustment also is used when older products are improved and become new products.
That often has been the case for computing products, televisions, consumer electronics and--dare we note--broadband internet access services.
Hedonically adjusted price indices for broadband internet access in the U.S. market then looks like this:
source: Bureau of Labor Statistics
In other words, dial-up internet access and gigabit broadband are not the same product. 10 Mbps broadband is not the same product as 100 Mbps or 500 Mbps service.
The same trend holds for mobile phone service, phones and other consumer electronics gear. The value and “quality” of a mobile phone subscription in 2000 is not the same as the 2020 value. Nor are the capabilities of a mobile phone the same in 2020 as was true in 2000.
Without hedonic adjustment, it is hard to track value, capabilities or price over time. And that is before adjusting for inflation, or comparing prices to the overall cost of all goods bought in any single market.
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