Hedonic regression models using in-house and out-of-house data: two data sources used by the Bureau of Labor Statistics to create hedonic regression models have their own distinct advantages and disadvantages; the Bureau performs research on each data source in an effort to meet its current and ever-evolving future needs

Monthly Labor Review, Dec, 2004 by Craig Brown

The NPD sample had to be further reduced after the initial cleaning phase. A total of 10 unique product model numbers had no price, rendering them unsuitable for modeling purposes. Seven model numbers were for items that were outside the scope of the CPI and therefore were ineligible for pricing. (5) Finally, two model numbers had average prices that were well below average for the types of telephones they represented. After deletion of those 19 unique model numbers, the final NPD sample stood at 352.

Market and product background. The market for home-based telephones is an established, mature market. Most consumers who have such telephones already have replaced their old ones with more technologically advanced models as they arrive in the marketplace (for example, corded to cordless or analog cordless to digital cordless phones). Consumers routinely accept new generations of advanced technology, and a few premium features are well known and valued by consumers. Manufacturers of home-based telephones bundle the different varieties of their product with features the consumer is thought to value.

Corded telephones allow for a clear, static-free conversation, but lack the convenience and mobility of a cordless telephone. Still, many people choose to keep corded telephones in their homes because they are inexpensive and reliable. Consumers of cordless telephones are met with a wide variety from which to choose. The most basic and inexpensive type of cordless telephone is the 46- to 49-MHz analog phone. For more security, 900-MHz analog telephones are available, although they provide less clarity and security than their 900-MHz digital counterparts. Home-based telephones underwent a substantial technological improvement in 1995 with the introduction of digital spread-spectrum (DSS) technology. This feature allows the signal to randomly jump channels, making it less susceptible to interference and eavesdropping. As the popularity of cordless telephones grew, the 900-MHz frequency range became overcrowded. In response, the Federal Communications Commission opened up the 2.4-GHz frequency to cordless telephones in 1998, whereupon the operating range of such telephones increased substantially. (6) However, even though the capability of a telephone to function at larger bandwidths is a valued characteristic, it is not as valuable as the ability to operate through DSS technology. While there are fewer signals to interfere with in the higher frequencies and the operating range is increased, without DSS technology interference and decreased security can still be problematic. (7) 5.8-GHz technology was not available during the period covered by this study, but has recently become available in the U.S. market for cordless phones.

Home-based telephone manufacturers will typically produce many models of a telephone, with each model including certain valued features. For example, a manufacturer may produce four types of 900-MHz digital phones: a basic model, a digital phone with caller ID, a digital speakerphone with caller ID, and a digital speakerphone with caller ID and a digital answering machine. It is presumed that the prices of these different telephones will become progressively higher as each additional feature is added to the basic model.