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EU KLEMS Project


EU KLEMS Working Paper Series

No. 38

Anita Wolfl (2008) Heterogeneity in Producer Price Changes in Business Services, (August, 2008)

Abstract

For a price index to be representative for a certain services activity it has to be based on services products that are “typical” for this activity. The sampling procedure used by the national statistical offices would guarantee homogeneity of products in terms of similarity in product characteristics. However, whenever the information on price changing patterns is used later on for the estimation of missing values for products within each product class, it becomes crucial that the products be similar also in terms of their price changing patterns. We test for this form of homogeneity using individual data collected by INSEE on prices for two activities of business services. We do not find strong evidence for homogeneity of product groups in terms of similar price changing patterns. After controlling for inter-firm variation within product groups, mean price changes per product group do not differ significantly from each other. Moreover, there is a large variation within product groups constituted by large and significant variation in price changes between firms that produce for the respective product groups. However, much seems to depend on how the product groups themselves are defined. In our data, we find no significant differences in mean price changes between product groups whenever we define them solely according to different customer groups. In contrast, whenever we define product groups according to product specifications, the picture changes.

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This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".



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Last changed on: September 23 2008