Seasonality, consumer heterogeneity and price indexes: the case of prepackaged software

This paper measures constant‐quality price change for prepackaged software in the US using detailed and comprehensive scanner data. Because there is a large sales surge over the winter‐holiday, it is important to account for seasonal variation. Using a novel approach to constructing a seasonally‐adjusted cost‐of‐living price index that explicitly accounts for consumer heterogeneity, I find that from 1997 to 2003 constant‐quality software prices declined at an average 15.9% at an annual rate. As a point of comparison, the Bureau of Labor Statistics reports average annual price declines of only 7.7% for prepackaged software.