Consumer Price Index

Hedonic Quality Adjustment Methods For Microwave Ovens In the U.S. CPI

Paul R. Liegey1

Preface

The U.S. Consumer Price Index (CPI) for Major Appliances would have increased 0.6 percent instead of the official index increase of 0.8 percent if hedonic quality adjustment methods had been applied to microwave oven (substitution) price changes from August 1999 through April 2000 (see attachment 1). This quality adjusted empirical result provides a more refined measure of price inflation for Major Appliances since there are a greater number of "pure" price changes used to calculate this item stratums' price index.

Of the three different approaches or methods that use the results from hedonic regression models to quality adjust price indexes, BLS employs the 'matched model' method in its official indexes.2 This method controls for quality changes based on the difference in product specifications or characteristics between two items when a substitute observation, or quote, occurs in the price index sample. It is important to note that under the 'matched model' approach only substitution price changes, or quotes, are eligible for hedonic quality adjustments.

As previously announced, the Bureau of Labor Statistics (BLS) is extending the use of quality adjustments derived from hedonic models in the CPI. A hedonic model decomposes the price of a consumer product into implicit prices for each of its important features and components, thereby providing an estimate of the value for each price influencing feature and component.

Effective with the CPI for July 2000, BLS has extended hedonic quality adjustments to Microwave ovens and Refrigerators, two products in the Major Appliances item stratum. The relative importance (share of weight), as of December 1999, for this stratum was 0.205 percent in the CPI for all Urban Consumers (CPI-U) and 0.236 percent in the CPI for Urban Wage Earners and Clerical Workers (CPI- W). Within Major Appliances, Microwave ovens are estimated to represent 11 percent of the weight and Refrigerators about 33 percent. In October 2000, BLS will further extend hedonic quality adjustments to Washers and Dryers, two other products in the Major Appliances item stratum. The remaining products in this stratum—those that will not be subject to hedonic quality adjustment at this time—include Freezers and Stoves and Ovens.

Background

In 1947, Raytheon demonstrated the world's first microwave oven and called it a "Radarange."3 The first microwave ovens cost between two and three thousand dollars and were sold primarily to the commercial marketplace. By the early 1950s, U.S. appliance makers began showing interest in the microwave oven since it had the ability to provide more flexibility to the consumer by reducing the time needed to cook different meals. In 1955, the Tappan Stove Company—under a licensing agreement with Raytheon—brought the first consumer microwave ovens to the U.S. market with a price tag of $1,300. These first consumer microwave ovens were more compact and less powerful than their "Radarange" predecessors and reflected only modest sales at their price range.

In 1965, Raytheon acquired Amana Refrigerators, Incorporated—an appliance maker with a well established distribution channel—and, in 1967, introduced to the U.S. market the first "countertop" model of microwave ovens that sold for $495 retail and were smaller, safer and more reliable than previous models. By 1986, 25 percent of U.S. households owned a microwave oven, up from less than one percent in 1971.4 Assuming microwave oven penetration into U.S. households was constant during this 15 year period, about 12 to 13 percent of U.S. households would have owned a microwave oven in 1978.

The microwave oven was introduced into the CPI sample in 1978.5 Since its' inception to the CPI, microwave ovens have been represented in three item stratum price indexes over three CPI revisions:

Today, more than 90 percent of U.S. households own a microwave oven.6 As consumer expenditures on microwave ovens have increased through time in the U.S. economy, so too have their representation in the CPI — currently accounting for 11 percent of the weight in the Major Appliances item stratum price index.

Microwave ovens were selected as a product that would benefit from hedonic regression modeling since manufacturers provide a vast range of sizes, configurations, and features. In the Consumer Digest’s 2000 Annual Buying Guide, the latest annual review on microwave ovens notes that

"today's ovens are safer, more convenient and offer a wealth of advanced features. Current models produce about 10 percent more power than previous versions and many include electronic sensors along with automatic controls for easy programming of cooking commands. They also come in a greater variety of sizes. From tiny no-frills models to sophisticated ovens large enough to handle full-size meals, microwave ovens are ready to meet a broad range of (consumer) needs. The best part is that some of these advanced features are now available at lower prices."7

These newer models of microwave ovens are included for price index calculations only if older models being used in the price index sample are no longer available (in the CPI outlets) for CPI pricing. When a newer model replaces an older model in the CPI, the price change that is used in the index is referred to as substitution price change. Substitution price change can be either "pure" (directly compared or quality adjusted) or "imputed" (non-comparable).

From August 1999 through April 2000 Major Appliances employed, on average, 215 price changes to calculate its U.S. level monthly price index (see attachment 2). Approximately 10 percent, or 22, of these price changes were substitution price changes. In comparison, microwave ovens accounted for, on average, 39 of the 215 price changes used to calculate Major Appliances index, and averaged (just) four substitutions per month from August 1999 through April 2000.

Data

Sample selection for the Hedonic Model

The official CPI sample of microwave oven prices used to calculate the Major Appliances CPI was too small for hedonic regression estimation. Using a process that mimics the official CPI sample selection process, an additional sample of 195 consumer businesses, or outlets, was chosen to augment the official CPI sample for microwave ovens. This additional outlet sample was used to select a sample of microwave oven prices. The supplementary sample was used only for estimating the hedonic regression model for microwave ovens.8

CPI field economists were instructed to collect a total of 390 microwave oven prices in the sample of 195 additional outlets. Individual microwave oven brand and models were selected by grouping all microwave ovens in a particular outlet into two groups—the "standard" microwave ovens and "better model" or higher quality microwave ovens. Once categorized into these two groups, the CPI field economist was instructed to select a "good selling" microwave oven from each of the "standard" and "better model" groups.

About 73 percent of the additional sample price quotes that were collected for microwave ovens had price and characteristic data that could be used in the regression model. The most common reason that CPI field economists could not collect the additional sample price quotes for microwave ovens was respondent refusal.9 A total of 381 prices—and characteristic descriptions—were used to estimate the hedonic model for microwave ovens. This total sample consists of 98 official CPI observations and 283 additional sample observations.

Price and Characteristic Data for the Hedonic Model

All of the price and characteristic data used for the microwave oven hedonic model was captured on CPI data collection documents, or checklists, for this item (see last attachment).

The prices that were collected for the microwave oven sample represent "retail offer" prices. As the name suggests, a retail offer price represents what a consumer business is willing to sell an item for which may, or may not, differ from the transaction price—what a consumer actually paid for the item. Retail offer prices, like transaction prices, may change through time depending on whether the item being sold is offered at a "regular" price or a "sale" price.

The set of quality attributes collected for each of the 381 microwave ovens in the sample are represented on the CPI checklist for this item (see last attachment). In each of the quality characteristic categories, CPI field economists selected the specific characteristic element that best described the item they were pricing. For example, if an Amana countertop model with a (oven) capacity of 1.6 cubic feet and cooking power of 1000 watts had been selected by the field economist, this would be designated on the CPI data collection document by selecting the A1, B1, D3, and E2 specification elements—see last attachment.

When possible, secondary source information such as manufacturer websites and consumer information magazines—including Consumer Digest’s and Consumer Reports—were used to verify the accuracy of the characteristic data collected on the CPI checklist for microwave ovens. Overall, the CPI field economists were able to provide complete, consistent, and accurate descriptions for most microwave oven observations included in the hedonic regression sample.

Model

The hedonic model that was specified for microwave ovens in this study resembles the categories of quality characteristics that are presented on the CPI checklist for this item (see last attachment):

ln P = b0 + b1 Type + b2 Capacity + b3 Brand + b4 Oven Controls + b5 Features + b6 Control + e.

The bi’s in this model represent the effect of the characteristics on the natural logarithm of price. The CPI prices that were collected in this sample represent "retail offer" prices, and approximately 37 percent of these prices were collected "on sale." The mean price for all microwave ovens in the sample was $207.75. The mean price for "regular" priced microwave ovens in the sample is $214.77 and the mean price for "sale" priced microwave ovens is $195.61. Since type of price (that is, regular or sale) is thought to have an impact on the overall price level, a dummy variable for sale price was included in the model to capture this effect, and its expected coefficient sign was negative.

A priori

expectations about which microwave oven characteristics influence price were developed, when possible, on industry information, manufacturer websites, and consumer information magazines.

Microwave Oven Types

Basically, two types of microwave ovens are sold in today's appliance market. Countertop models are more frequently advertised by manufacturers and retailers and accounted for approximately 76 percent of the microwave ovens in the sample. Consumers who have smaller kitchens and lack counter space can opt for an over-the-range model—this type of microwave oven accounted for the remaining 24 percent of the microwave oven sample. All over-the-range models come with an installation kit for mounting. In addition, since over-the-range models take the place of a range or stove exhaust hood, all come with a ventilation fan that exhaust both the range and microwave oven cooking gases. The mean prices for the 288 countertop models and 93 over-the-range models in the hedonic sample were $140.64 and $416.31, respectively. By way of comparison, a December 1999 Consumer Reports study on microwave ovens found that the countertop ovens they tested sold for $200 or less while over-the-range models typically sold for about $350 to $450.10 Dummy or indicator variables were created for both types of microwave ovens. The over-the-range variable was included in preliminary models and was expected to have a large, positive impact on price.

Both the size and cooking power characteristics of microwave ovens are also assumed to have a significant impact on microwave oven prices. Manufacturers and retailers advertise size in terms of cubic feet and cooking power in terms of maximum watts. Both size and cooking power assume a wide range of numeric values—see the CPI checklist for microwave ovens (last attachment). To accommodate this wide range of values, continuous variables were created for both cavity cubic feet and maximum watt cooking. It was assumed that the price of the microwave oven would increase with increasing values for one or both of these variables. For example, a 2.0 cubic foot oven with 1100 watts of cooking power is assumed to sell for a higher price than a 0.8 cubic foot oven with 700 watts of cooking power ceteris paribus.

A preliminary model was specified with two dummy variables, sale price and above stove, and two continuous variables, cavity cubic feet and maximum wattage (see attachment 3, Iterative regression 1). This model specification proved to explain a significant portion of the variation in (the natural log of) price with an R2 of slightly more than 82 percent. While the magnitude, direction and significance of the parameter estimates in the preliminary model generally conformed with a priori expectations, somewhat low tolerance values for the cavity cubic feet and maximum wattage variables indicated that multicollinearity might be present in the model. Further investigation revealed that the pearson correlation coefficient, or measure of collinearity, for these two variables was positive and strong at 0.61—they tend to move together and can serve as a proxy for each other. The existence of multicollinearity causes the standard errors of the correlated variables to increase and the associated parameter estimates to be imprecise.11 Subsequent variations of this preliminary model—not included in Attachment 3—revealed that the variable for cavity cubic feet provided a better overall fit for the model and was included in the final model.

Microwave Oven Brands

Brand

was the next category of quality characteristics used to specify the hedonic model for microwave ovens. In addition to the 9 brands listed on the CPI checklist for this item (see last attachment), dummy or indicator variables were created for 7 additional brands that were collected in the "Other brand" specification element—see B99 specification element on the CPI checklist. Separate variables were created for each brand rather than trying to categorize them into "high quality," "medium quality," and "low quality" groups since little secondary source information was available about ranking quality of microwave ovens by brand.

As an established leader in the production and distribution of microwave ovens, Amana was thought to have a positive impact on price. Inclusion of the brand variables with the previous model specification—see attachment 3, Iterative regression 2—yielded a slightly better fit with an R2 of 87 percent. In the absence of strong a priori about brands, low tolerance values and statistically insignificant parameter estimates led to the exclusion of some of the brand name variables. Subsequent variations of this preliminary model—not included in Attachment 3—and inclusion of other quality category variables on the CPI checklist led to the following brands being included in the final model: Amana, Kitchenaid, General Electric, Whirlpool, Samsung, Admiral, Emerson, and Sanyo.

Interestingly enough, the recent report on the CPI by The Conference Board, notes that "In existing products, probably the biggest problem in quality change that the CPI never recognizes (is) the subtle, often gradual changes that are difficult to detect and to measure. These would include for example,…reduced incidence of repairs to household appliances…"12 Coincidentally, a December 1999 Consumer Reports study on microwave ovens supplies data about percent of "repairs and serious problems" for microwave oven brands (see Attachment 4). This data was compared to the implicit price values estimated in the final hedonic regression model for microwave ovens to see if consumer valuation of brand was consistent across studies. Of the eight brands included in the final hedonic model and the 12 brands included in the Consumer Reports study, six brands were common to both studies. The following is an ordinal ranking of brand value for both studies results

Consumer Reports Percent of Repairs Brands Hedonic Brand Variables
Ranking Ranking
1 Samsung Amana A
2 Sanyo General Electric B
3 Emerson Whirlpool C
4 General Electric Samsung D
5 Whirlpool Emerson E
6 Amana Sanyo F

A cursory comparison of the two studies reveals that brands in the hedonic model with the most positive implicit price values have more "repairs and serious problems" while brands with the most negative implicit price values have less "repairs and serious problems." This (limited) comparison of brand quality seems to suggest that repair histories do not (in and of themselves) influence relative price levels for microwave oven brands.

Microwave Oven Controls

Oven Control

characteristics in the "Type of Controls," "Number of Power Settings," and "Number of Pre-Set Programming Stages" specification categories on the CPI checklist (see last attachment) were next considered in specifying the hedonic regression model for microwave ovens.

In the "Type of Controls" specification category, dummy variables were created for electronic controls and manual controls. While most of the microwave ovens in today's appliance market possess touch sensitive or electronic controls, some manufacturers still offer models with push button or rotary dial manual controls. Almost 95 percent of the microwave oven sample contained microwave ovens with electronic controls, but a variable for manual controls was included in a preliminary model—see attachment 3, iterative regression 3—since a priori expectations were that only inferior quality models possessed this type of control. As expected, the parameter estimate for the manual controls variable was negative, remained robust in subsequent regressions, and was included in the final model.

Most microwave ovens can control the (total) cooking power or wattage—most commonly this feature is given in 10 percent increments ranging from a low power of 10 percent to a high power of 100 percent. The December 1999 Consumer Reports study on microwave ovens notes that "most models" have 10 power settings.13 Similarly, most of the observations in the microwave oven sample were described as possessing 10 power settings. Other values collected for this specification element were "manual setting," "not specified," and "not applicable." Since 10 power settings was the only specification element listed in the "Number of Power Settings" category and no other meaningful variables could be created, the 10 power settings variable was not included in the final model.

A less advertised characteristic on microwave ovens is the "Number of Pre-Set Programming Stages." This oven control allows the user to pre-set or pre-program the microwave oven to cook food at a certain power setting for a certain length of time and then automatically switch to a different power setting for another length of time. An example of this feature might be programming the microwave oven to cook a food for two minutes at defrost, three minutes at a high temperature and one-minute at a low temperature.

It was assumed that microwave ovens with a higher number of sequential cooking stages offered more convenience and greater value to the consumer than microwave ovens with a lesser number of sequential cooking stages ceteris paribus. However, the December 1999 Consumer Reports study on microwave ovens notes that "most models can be programmed to cook for at least two sequential stages and up to about 100 minutes in all."14

Dummy variables were created similar to the specification elements on the CPI checklist (see last attachment) for the "Number of Pre-Set Programming Stages." In particular, variables for 4 stage, 3 stage, and 2 stage programming were tested in a preliminary model—see attachment 3, iterative regression 3. While the parameter estimates for 3 stage and 2 stage programming were marginally negative and statistically insignificant, the parameter estimate for 4 stage programming was positive and statistically significant. Subsequent variations of this preliminary model—not included in Attachment 3—and inclusion of other quality category variables led to the 4 stage programming variable remaining in the final model.

Microwave Oven Features

Manufacturers and retailers of microwave ovens offer and advertise a variety of features on their products. Microwave oven features are represented in the "Cavity Features," "Cooking Features," and "Programming Features" specification categories on the CPI checklist (see last attachment) for microwave ovens. Dummy or indicator variables were created for all characteristics in these specification categories. Each category of variables was tested to see whether the overall fit of the model could be enhanced. Basic preliminary models used to test each category of features are presented in Attachment 3, iterative regressions 4 through 6.

Of the 19 dummy variables that were created for the three categories of feature specifications, only four of these variables—built-in sensor, auto sensor, convection cook, and convection broil—were used in the final regression model for microwave ovens. In addition, since these characteristics were not clearly delineated on the CPI checklist—or in the product descriptions at the retail outlets—the built-in sensor and auto sensor variables were combined into one variable called sensor and the convection cook and convection broil variables were combined into one variable called convection.

Sensor

technology helps prevent undercooking or overcooking food. Through measures such as gauging the release of steam as food heats, sensor(s) detect the degree to which food has cooked and adjusts heating time or cooking power accordingly. This feature is more common in today's microwave ovens and was reported in 54 percent of the 381 microwave ovens included in the sample. It was expected a priori that this feature would have a mild to moderate positive influence on price. Since the parameter estimate for sensor was positive, statistically significant, and remained robust in subsequent variations of preliminary models—included and not included in Attachment 3—the sensor variable remained in the final model.

Microwave ovens with convection cooking rely on a fan that gently circulates heated air over and around the food, producing golden brown exteriors and moist interiors. Convection microwaves ovens can function as normal microwaves ovens, as a regular convection oven, or a combination of the two at once. This feature was reported for about five percent of the microwave oven sample and was expected a priori to have a strong positive influence on price. Since the parameter estimate for convection was positive, statistically significant, and remained robust in subsequent variations of preliminary models—included and not included in Attachment 3—the convection variable remained in the final model.

Most other microwave oven feature variables were excluded from the final regression model because of their poor performance in preliminary and subsequent regression models. For example, all of the feature parameter estimates in the "Programming Features" specification category consistently reflected small nominal impacts on price and were statistically insignificant. These kinds of features are frequently touted by retailers and manufacturers as value enhancing but typically do not contribute (substantially) to the price—or value—of microwave ovens that possess them.

Microwave Oven Miscellaneous Specifications

Other CPI checklist specification categories that were examined for hedonic model development included optional installation kits for countertop models as well as delivery charges. These CPI categories were found to be, for the most part, not representative of the microwave oven market. On the few occasions that either the cost of optional installation kits or delivery charges were reported with the price of the microwave oven, these additional charges were "backed out" of the overall price so that just the price of the microwave oven was reflected in the sample data.

Similarly, the manufacturer warranty specification category on the CPI checklist could not be utilized in specifying the hedonic model for microwave ovens. Almost all microwave ovens that are sold in today's market come with a standard one year parts and labor manufacturer warranty. Since this was the predominant type of manufacturer warranty captured in the microwave oven sample, it could not be used in the final regression model.

Finally, the country of origin specification category on the CPI checklist was tested to see if the hedonic model for microwave ovens could be fitted with any of these variables. Country of origin represents the country in which the product—in this case microwave ovens—was constructed and is believed to serve as a proxy for the quality of a good and service. In the sample used in this study, over 90 percent of the 381 microwave ovens were constructed in six different countries. In particular, microwave ovens constructed in the USA, Japan, Korea, China, Singapore, and Thailand accounted for 42, 8, 16, 6, 10, and 9 percent of the sample data, respectively.

In the absence of a priori about country of origin, low tolerance values and statistically insignificant parameter estimates led to the exclusion of most of the country of origin variables. Only the parameter estimate for Korea was statistically significant and remained in the final regression model.

Control Variables

Various control variables were tested representing region of the country, city size, and type of business as defined in the CPI. The most consistently performing and statistically significant control variables that were included in the final microwave oven model were appliance stores, warehouse outlets, and A size cities (populations 1,000,000 or greater) in the Northeast and West regions. The purpose of control variables are to minimize the unexplained variation that might remain after the model has been fitted with price determining characteristics.

Attachment 3, iterative regressions 1 through 7, are included in this study to give the reader a sense of how the hedonic model for microwave ovens progressed as more categories of CPI variables were considered for model inclusion. Iterative regressions—both included and not included in Attachment 3—were performed until the remaining parameter estimates in the model below exhibited relative robustness to the inclusion and deletion of other variables not included. The direction and magnitude of the parameter estimates seem reasonable, and the statistics pertaining to fit, significance, and collinearity are within generally accepted limits.

Variable Category

Variable Name

Parameter Estimate

T Statistic

Tolerance

Intercept

4.410015

108.817

Type of Price: Sale Price

-0.077066

-4.122

0.8536454

Oven Type: Above Stove or Range

0.938410

40.775

0.7101415

Table Top or Countertop

Base

Brand: Amana

0.457959

8.997

0.8134151

Kitchenaid

0.453339

5.387

0.9442307

General Electric

0.185056

6.599

0.7371506

Whirlpool

0.130882

3.063

0.8452731

Other brands not listed

Base

Samsung

-0.122763

-2.628

0.8414810

Admiral

-0.173660

-2.686

0.9210839

Emerson

-0.195389

-2.806

0.9242426

Sanyo

-0.228115

-2.370

0.9594545

Oven Cavity Capacity

(in cubic feet)

Capacity (per cubic foot)

0.336293

12.776

0.7596359

Type of Controls: Electronic or Touch Sensitive

Base

Manual or Push Button

-0.194143

-4.799

0.8532257

Memory Programming:

(number of stages)

4 Stage Programming

0.101837

4.167

0.9007655

No Stage Programming

Base

Features: Convection Cook/Broil

0.329675

7.652

0.8778186

Auto or Built-In Sensor

0.057433

3.127

0.8274627

Country of Origin: Other countries not listed

Base

Korea

-0.069286

-2.534

0.7001641

Type of Outlet: Appliance outlet

0.084715

4.072

0.6637763

Warehouse outlet

-0.223390

-2.620

0.9197068

Control Variables: A size city/Northeast region

0.062619

2.265

0.8554760

A size city/West region

0.073488

2.921

0.8623244

R2=0.9168 Adjusted R2=0.9121 F value=198.783 Number of observations=381

Hedonic Quality Adjustments and Price Index Simulation

BLS employs the 'matched model' method of quality adjustment in its official indexes. This method controls for quality changes based on the difference in product specifications or characteristics between two items when a substitute observation, or quote, occurs in the price index sample. It is important to note that under the 'matched model' approach only substitution price changes, or quotes, are eligible for hedonic quality adjustments.

During the study period from August 1999 through April 2000, a total of 39 microwave oven substitution price changes—an average of (just) four per month—occurred in the Major Appliances price index sample. For each microwave oven substitution price quote, differences in the specification or characteristic data of the old and new items were identified to see if the parameter estimates in the hedonic model could be utilized to quality adjust the official price change.

Approximately 54 percent, or 21, of the 39 microwave oven substitute price changes in the study were quality adjusted based on specification differences between substitute items. The most common type of quality adjustment performed for microwave ovens in this study was for changes in capacity—represented in more than 80 percent of the quality adjusted (substitution) prices. Other quality differences such as changes in sensors, type of controls, stage programming, and country of origin specifications were also adjusted for in the hedonic indexes. The table below provides a summary of mean price changes for microwave oven substitutions in both the official and quality adjusted Major Appliances indexes.

Summary of mean price changes for microwave oven substitutions

Type of Substitution Published Index Number Mean Price Change Quality Adjusted Index Number Mean Price Change
All Substitutions 39 +4.05 % 39 +1.31 %
Comparable 34 +3.88 % 18 +1.42 %
Quality Adjusted 0 0.00 % 21 +1.22 %
Non-comparable (Imputed) 5 +5.16 % 0 0.00 %

Substitution price change can be either "pure" (directly compared or quality adjusted) or "imputed" (non-comparable). The empirical results above reveal that not only was all "imputed" price change replaced with "pure" price change in the quality adjusted index but that almost half of the "comparable" substitution price changes in the published index were made "more comparable or pure" in the quality adjusted index. In addition, the mean price changes for each group of substitutions are lower after quality adjustment than in the published indexes. This result implies that some price increases due to quality change may have been reflected in the published indexes and caused them to be higher.

Monthly price indexes were simulated for August 1999 through April 2000 to determine the impact of quality adjusted microwave oven substitution price changes on the Major Appliances CPI. First the published indexes, or without quality adjustment indexes, were recreated by Statistical Analysis System (SAS) computer programs using historical CPI data. The duplication of the published indexes provides a "control" environment from which the quality adjusted Major Appliances indexes can be compared.

U.S. level price indexes, such as those examined in this study, were obtained by summing elementary, or local area, price indexes using aggregation weights derived from the Consumer Expenditure Survey (CE). The results of the index simulation, with and without hedonic quality adjustments, are presented in Attachment 5. In addition, graphical representations of the simulated price indexes for Major Appliances are presented in Attachments 1 and 6.

Attachments 1 and 5 indicate that the U.S. CPI for Major Appliances would have increased 0.6 percent instead of the official index increase of 0.8 percent if hedonic quality adjustment methods had been applied to microwave oven (substitution) price changes from August 1999 through April 2000. Given the small representation that microwave oven substitution price changes had in the Major Appliances CPI during the study period—an average of just four price quotes per month—the impact at the U.S. level was relatively large. In addition, the empirical results suggest that the official index for Major Appliances rose more rapidly than if hedonic quality adjustments had been applied to microwave oven substitution price changes during the study period.

Attachment 6 illustrates the differences between the published and quality adjusted indexes on a monthly basis for the nine-month period in the study—August 1999 through April 2000. Comparisons of the quality adjusted and published Major Appliances price indexes reveal the following: In months when the index increased, the quality adjusted index rose faster than the published index in one month (August), both indexes rose at the same rate for two months (September and April), and the quality adjusted index rose slower than the published index in the remaining two months (November and March). In addition, in the remaining four months when the index fell, there were two months (December and February) in which both indexes fell at the same rate and two months (October and January) in which the quality adjusted index fell faster than the published index.

Two factors may account for the empirical results reported on in this study:

First, the small number of microwave oven substitution price quotes that were quality adjusted may have been to few to make a (representative) impact on the Major Appliances indexes in 1999-2000. Microwave oven substitution price quotes accounted for less than two percent—on average, four of 215 prices—of the monthly CPI sample for Major Appliances from August 1999 to April 2000 and only half of these microwave substitutions had their price changes adjusted using the hedonic technique.

Second, CPI data collection procedures direct BLS field economists to select substitution or replacement items that are the "same or similar" in quality as the old item they had been pricing. This procedure tends to yield substitution price quotes that have fewer bona fide characteristic changes (between substitute items) than might have occurred if the procedures had instructed field economists to collect (substitute item) data for the most technologically advanced or best selling microwave ovens.

This second factor is important in developing expectations as to the direction and magnitude of quality adjusted indexes when compared to indexes without quality adjustments for consumer appliance goods. If BLS field economists were instructed to substitute to the best selling or most technologically advanced microwave oven products, one might expect that the Major Appliances indexes with and without hedonic quality adjustments would diverge further (than in this study) from each other.

BLS is considering additional ways to more quickly bring a greater number of new good quotes into the CPI rather than just relying on the current Telephone Point of Purchase Survey (TPOPS) rotations. Lane (2000) provides a summary of additional methods for bringing new goods into CPI samples more quickly.15 In particular, both the directed item rotation and directed item replacement methods of updating price index samples instruct field economists to "select a new set of (sample) items representing a more recent period's purchases" for target groups of goods or services that are constantly changing in quality with successive generations of product introductions.

Microwave Oven Characteristics That May Be Important in Future Models

Future generations of microwave ovens could experience rapid quality change if the growth of "smart" appliances becomes popular with consumers. Recent studies indicate that within ten years, 98 percent of (consumer) appliances will have computer processing capability and be networked and controlled from remote locations—such as the office or cell phone.16 The movement to embed networking capabilities into consumer appliances for the home has been hailed as a major business opportunity for appliance manufacturers, technology companies and (internet) service providers alike. To date, however, these smart appliance products have been costly and used mainly in demonstrations at trade shows and concept homes.17

Currently, food scientists have created several smart microwave ovens that recognize the food to be prepared and offer advice on recipes and nutrition. In particular, food scientists maintain that the next generation of microwave ovens will incorporate the following "smart" features: 18

will allow consumers to customize the operation of their appliance. For example, since the degree to which food is cooked varies with the preference of the individual, the oven could be told to cook a steak until it is medium rare rather than well done. Simply tell the microwave your name and the next time that product is cooked, the microwave will modify the cooking instructions to your liking. Have a food allergy? Are you diabetic? The microwave will check the ingredients against your personal profile and send a warning if you shouldn’t be eating this food.

Specific examples of "smart" microwave ovens that have been developed to date include the following:

has developed a microwave that reads directions on pre-packaged food when the package's bar code is swiped across a special sensor. The oven, developed with Rutgers University researchers, will then contact the manufacturers' Internet site, read the directions and cook the meal. Samsung's bar code-reading oven will likely cost less than $500 when it hits the U.S. market sometime in early 2001.20

Many manufacturers and retailers of consumer appliances are optimistic that these "smart" microwave ovens—and other "smart" appliances—will become popular with consumers when they start to become available to U.S. consumers in early 2001. Their optimism is based, in part, on "the swift acceptance of the Internet among consumers and because of the soon-to-be-widespread availability of so called 'broadband' internet access, where home users will have swift connections that eliminate the delays and slow downloads of standard modem connections." 24

Many retailers are expected to aggressively advertise smart appliances when they become available in the U.S. economy sometime in early 2001. For example, Sears intends to create room settings inside many of the 860 full-line, mall-based Sears stores to explain to consumers the value-added properties of these new (smart appliance) products and services. In addition, these new smart appliance products will be demonstrated so consumers can relate them to their own living rooms and kitchens. Recently, a spokesperson for Sears indicated that the company "views the Internet as a huge catalyst that will drive transformation in the home, and we intend to position ourselves to play whatever role is necessary." 25

"Currently, the electronics industry is mulling over two emerging, would-be standards for home networking of smart appliances, both based on software widely used in personal computers and across the Internet. One of the home networking standards—known as Universal Plug and Play (UPnP)—is being developed by a team of appliance hardware and software manufacturers headed by Microsoft. The competing platform—a language from Sun Microsystems called Jini—has the same goals as UPnP, which is to provide a standard for networking home appliances. The first generation of both types of smart appliances should be hitting the market in early 2001."26

In short, internet technology is making a whole new line of smart appliances a possibility for consumers. However, these future smart appliances might hold some of the same compatibility problems that computer users endure today. For example, one might be able to turn on an Jini-equipped home security system with a Jini cell phone—but one might not be able to power up an UPnP speaking microwave oven with it. Industry analysts think that there will probably be bridges to connect the two platforms where customers demand it. For example, one might have to work around a compatibility problem by using an Jini-equipped cell phone to turn on your UPnP speaking microwave oven through a personal computer that speaks both languages.27

Technical issues aside, it seems clear that U.S. retailers will be bringing these new smart appliances to the U.S. marketplace for consumer purchase in the very near future. If smart appliances become popular with consumers when they are available for purchase, BLS should try and include these new products in the Major Appliances CPI soon after their introduction so that any rapid price movements—sometimes associated with the introduction of new products—are not excluded from the CPI. Representation of smart appliances in the Major Appliances CPI should be proportional to consumer expenditures on these new products vis-à-vis consumer expenditures on all major appliances. If consumer expenditures on smart appliances increase through time, so should their representation in the CPI.

Conclusion

The microwave oven hedonic model developed in this study represents a snapshot of how the average consumer values quality for microwave ovens in today’s appliance market. Iterative regressions for microwave ovens are included in this study to give the reader a sense of hedonic model development as more categories of CPI characteristics were considered for model inclusion. The current rate of (quality) change for this consumer appliance product is not as fast as other retail products—for example, cellular and wireless telephones or DVD players in the consumer electronics market.

The parameter estimates in the final hedonic model for microwave ovens exhibit relative robustness to the inclusion and deletion of other variables not included in the final model. The direction and magnitude of the parameter estimates seem reasonable, and the statistics pertaining to fit, significance and collinearity are within expected limits. It should be used in conjunction with commodity analyst judgment to quality adjust CPI quote level substitution data when possible.

Future generations of microwave ovens could experience rapid quality change if the growth of "smart" appliances becomes popular with consumers of this appliance. BLS should include these new smart products in the Major Appliances CPI soon after their introduction so that any rapid price movements—sometimes associated with the introduction of new products—are not excluded from the CPI. Representation of smart appliances in the Major Appliances CPI should be proportional to consumer expenditures on these new products vis-à-vis consumer expenditures on all major appliances.

Notes

  1. Acknowledgments: the author wishes to thank Nicole Shepler, Walter Lane, Rick Devins and John Greenlees for helpful suggestions.
  2. Silver (1998) notes that there are " three different approaches to the use of hedonic regressions for measuring quality-adjusted price changes. The first complements the existing matched models approach generally used by statistical offices, by helping to identify key quality characteristics and, when matches are not available, providing adjustment factors to allow ‘like’ to be compared with ‘like’. The second is the direct method, found in the academic literature, which uses the coefficients on the dummy variables for time in an hedonic regression as estimates of quality-adjusted price changes. The third method requires quite extensive data for the compilation of ‘exact’ hedonic price indices as defined from economic theory."—Page 1 from reference below.
  3. Source, "Raytheon Historical Backgrounder," under the Microwave Cooking heading on page 3; >
  4. Source, "Technology and Economic Growth in the Information Age," National Center for Policy Analysis, under the New Technologies Spread Faster heading on page 6; http://www.ncpa.org/bg/bg147/bg147.html (accessed 3/21/2000).
  5. Source, "Toward A More Accurate Measure Of The Cost Of Living," The Final Report to the Senate Finance Committee of the Advisory Commission to Study the Consumer Price Index," under the New Products Bias heading on page 22; http://www.ssa.gov/history/reports/boskinrpt.html (accessed 4/7/2000).
  6. Source, Cox and Alm (1997), "Time Well Spent: The Declining Real Cost of Living in America," Federal Reserve Bank of Dallas—1997 Annual Report; see Exhibit 8 on page 22; http://www.dallasfed.org/htm/pubs/pdfs/anreport/arpt97.pdf (accessed 12/8/1999).
  7. Source: "Microwave Ovens" in the Consumer Digest’s 2000 Annual Buying Guide, November/December 1999, pages 106-107.
  8. For additional information about the hedonics project on quality change in the U.S. CPI see Fixler, Fortuna, Greenlees and Lane (1999), "The Use of Hedonic Regressions to Handle Quality Change: The Experience in the U.S. CPI," Presented at the Fifth Meeting of the International Working Group on Price Indices; August 1999; Pages 1-20. http://www.statice.is/ottawa/bls.rtf (accessed November 1999).
  9. The collection of hedonic price data by CPI field economists coincided with the collection of official CPI price data and TPOPS price data. Reports from the field indicated that some respondents simply did not have the time to assist CPI field economists with hedonic data collection.
  10. Source: "Microwave Ovens Test: Faster, smarter, bigger," in Consumer Reports December 1999 issue, page 28.
  11. Source: Shepler (2000) in "Developing a Hedonic Regression Model For Refrigerators in the U.S. CPI," under the Data and Regression Model http://www.bls.gov/cpirfr.htm (accessed 8/16/2000)
  12. Source: "Measuring Prices in a Dynamic Economy: Re-Examining the CPI," The Conference Board, under the Quality Bias heading on page 19; Special Report 1260-99-SR, September 17, 1999.
  13. Source: "Microwave Ovens Test: Faster, smarter, bigger," in Consumer Reports December 1999 issue, page 30.
  14. Source: "Microwave Ovens Test: Faster, smarter, bigger," in Consumer Reports December 1999 issue, page 30.
  15. See Walter Lane, "Addressing the New Goods Problem in the Consumer Price Index," Presented at the Issues in Measuring Price Change and Consumption Conference, Bureau of Labor Statistics, Washington, D.C., June 5-8, 2000, pages 1-26.
  16. Source: "GE Unveils Concept 'Smart' Appliances at NAHB," Yahoo Finance—PR Newswire; January 14, 2000, pp. 1-2; http://biz.yahoo.com/prnews/000114/ky_ge_new__1.html (accessed January 19, 2000).
  17. Source: "Smart Appliances Hit The Net," TechWeb News / Technology News; January 18, 2000, pp. 1-3; http://www.techweb.com/wire/story/TWB20000118S0032 (accessed May 5, 2000).
  18. Source: "New Wave Microwave," Science and Technology News NetworkTm; The Center for Science and the Media, and ScienCentral, Inc.; June 23, 1999, pages 1-4; http://stn2.net/pagesl1/newwave/moreinfo.html (accessed 5/22/2000).
  19. Source: "Nukin' meals on the Net," USA Today—Tech Reviews; January 17, 2000, pages 1-3; http://www.usatoday.com/life/cyber/tech/review/crg815.htm (accessed 5/11/2000).
  20. Source: "Nukin' meals on the Net," USA Today—Tech Reviews; January 17, 2000, pages 1-3; http://www.usatoday.com/life/cyber/tech/review/crg815.htm (accessed 5/11/2000).
  21. Source: " 'Smart' devices could raise machines' IQ," The Daily Camera; January 8, 2000, pages 1-2; http://www.bouldernews.com/business/08delec.html (accessed 5/30/2000).
  22. Source: "GE Unveils Concept 'Smart' Appliances at NAHB," Yahoo Finance—PR Newswire; January 14, 2000, pp. 1-2; http://biz.yahoo.com/prnews/000114/ky_ge_new__1.html (accessed January 19, 2000). Also, "GE, Microsoft in pact for talking friges, smart ovens," Yahoo Finance; January 13, 2000, pages 1-2; http://biz.yahoo.com/rf/000113/beg.html (accessed January 19, 2000).
  23. Source: "GE Unveils Concept 'Smart' Appliances at NAHB," Yahoo Finance—PR Newswire; January 14, 2000, pp. 1-2; http://biz.yahoo.com/prnews/000114/ky_ge_new__1.html(accessed January 19, 2000). Also, "GE, Microsoft in pact for talking friges, smart ovens," Yahoo Finance; January 13, 2000, pages 1-2; http://biz.yahoo.com/rf/000113/beg.html (accessed January 19, 2000).
  24. Source: "Appliances to Be Linked to Internet," Washington Post; January 18, 2000, pages 1-5; http://www.washingtonpost.com/wp-dyn/business/A57379-2000Jan17.html (accessed May 5, 2000).
  25. Source: "Appliances to Be Linked to Internet," Washington Post; January 18, 2000, pages 1-5; http://www.washingtonpost.com/wp-dyn/business/A57379-2000Jan17.html (accessed May 5, 2000).
  26. Source: "Can Appliances Get Smart?" Washington Post; May 26, 2000, pages 1-3; http://washingtonpost.com/wp-dyn/articles/A8164-2000May25.html (accessed May 26, 2000).
  27. Paraphrased from: "Can Appliances Get Smart?" Washington Post; May 26, 2000, pages 1-3; http://washingtonpost.com/wp-dyn/articles/A8164-2000May25.html (accessed May 26, 2000).

References

Consumer Digest’s 1999 Annual Buying Guide

(December 1998), pages 110-113.

Consumer Digest’s 2000 Annual Buying Guide

(December 1999), pages 106-108.

Consumer Reports

December 1999 Issue, pages 28-31.

Fixler, Fortuna, Greenlees and Lane (1999), "The Use of Hedonic Regressions to Handle Quality Change: The Experience in the U.S. CPI," Presented at the Fifth Meeting of the International Working Group on Price Indices; August 1999; Pages 1-20. http://www.statice.is/ottawa/bls.rtf (accessed November 1999).

Silver, M.S. (1998), "An evaluation of the use of hedonic regressions for basic components of consumer price indices," Third Meeting of the International Working Group on Price Indices, Statistics Netherlands, Voorburg: Netherlands (1998) 1-12. http://www.statcan.ca/secure/english/ottawagroup/pdf/23SIL3.pdf (accessed November 1999).

Lane, Walter (2000), "Addressing the New Goods Problem in the Consumer Price Index," Presented at the Issues in Measuring Price Change and Consumption Conference, Bureau of Labor Statistics, Washington, D.C., June 5-8, 2000, pages 1-26.

Attachment 1

Attachment 2

Number and Distribution of CPI Price Changes for Major Appliances (HK01) and Microwave Ovens (HK014 - 01A)

Major Appliances (HK01)
Total Prices Collected Substitutions

# / (% of Total Prices

Comparable

# / (% of Subs)

Non-comparable

# / (% of Subs)

Month
9908 227 36 / (16) 19 / (53) 17 / (47)
9909 217 27 / (12) 22 / (81) 05 / (19)
9910 233 33 / (14) 30 / (91) 03 / (09)
9911 208 16 / (08) 11 / (69) 05 / (31)
9912 209 15 / (11) 09 / (60) 06 / (40)
0001 213 22 / (10) 17 / (77) 05 / (33)
0002 208 08 / (04) 07 / (88) 01 / (12)
0003 210 19 / (09) 14 / (74) 05 / (26)
0004 209 20 / (10) 19 / (95) 01 / (05)
Average 215 22 / (10) 16 / (73) 06 / (27)

Microwave Ovens
(HK014 - 01A
Month Total Prices Collected Substitutions # / (% of Total Prices) Comparable # / (% of Subs) Non-comparable # / (% of Subs)
9908 45 06 / (13) 05 / ( 83) 01 / (17)
9909 40 06 / (15) 05 / ( 83) 01 / (17)
9910 52 10 / (19) 10 / (100) 0
9911 37 04 / (11) 03 / ( 75) 01 / (25)
9912 35 03 / (09) 03 / (100) 0
0001 36 01 / (03) 01 / (100) 0
0002 31 02 / (07) 02 / (100) 0
0003 37 04 / (11) 03 / ( 75) 01 / (25)
0004 36 03 / (08) 02 / ( 67) 01 / (33)
Average 39 4.3 / (11) 3.7 / (86) 0.6 / (14)

Attachment 3

Iterative Regression 1

Analysis of Variance

Source DF Sum of Squares Mean Square F Value Prob>F
Model 4 94.72223 23.68056 445.340 0.0001
Error 377 20.04664 0.05317
C Total 381 114.76887
Root MSE 0.23060 R-square 0.8253
Dep Mean 5.17114 Adj R-sq 0.8235
C.V. 4.45927

Parameter Estimates

Variable DF Parameter Estimate Standard -Error ^T for HO Parameter=0 Prob>|T| Tolerance
INTERCEP 1 4.276011 0.08258363 51.778 0.0001 .
Sale Price 1 -0.155174 0.02463827 -6.298 0.0001 0.98764281
Above Stove 1 1.106546 0.02811349 39.360 0.0001 0.95621038
Capacity 1 0.266982 0.04158320 6.420 0.0001 0.61155039
Max Watt 1 0.000344 0.00010306 3.334 0.0009 0.61034772

Iterative Regression 2

Analysis of Variance

Source DF Sum of Squares Mean Square F Value Prob>F
Model 19 100.86768 5.30883 138.247 0.0001
Error 362 13.90118 0.03840
C Total 381 114.76887
Root MSE 0.19596 R-square 0.8789
Dep Mean 5.17114 Adj R-sq 0.8725
C.V. 3.78953

Parameter Estimates

Variable DF Parameter estimate Standard Error T for HO:Parameter=0 Prob >|T| Tolerance
INTERCEP 1 4.434162 0.09365782 47.344 0.0001 0.82343606
Sale Price 1 -0.107901 0.02293067 -4.706 0.0001 0.64537799
Above Stove 1 1.002691 0.02908077 34.480 0.0001 0.78608449
Capacity 1 0.337936 0.03116885 10.842 0.0001 0.28633282
Amana 1 0.470044 0.10334343 4.548 0.0001 0.46104201
Emerson 1 -0.218208 0.11875817 -1.837 0.0670 0.09690710
GE 1 0.254041 0.09317290 2.727 0.0067 0.32143698
Goldstar 1 -0.005343 0.10574798 -0.051 0.9597 0.06880676
Kenmore 1 0.056483 0.09268578 0.609 0.5426 0.19320499
Panasonic 1 0.071679 0.09791101 0.732 0.4646 0.25563210
Samsung 1 -0.146333 0.10209793 -1.433 0.1526 0.05643973
Sharp 1 0.081846 0.08994754 0.910 0.3635 0.21910637
Whirlpool 1 0.194855 0.10108550 1.928 0.0547 0.41832613
Admiral 1 -0.173484 0.11557959 -1.501 0.1342 0.43413066
Frigidare 1 0.020232 0.12238369 0.165 0.8688 0.69376954
Hotpoint 1 -0.087808 0.16679725 -0.526 0.5989 0.55326860
Kitchenaid 1 0.666140 0.13242177 5.030 0.0001 0.62584240
Magic Chef 1 -0.108736 0.14357889 -0.757 0.4493 0.43559856
Maytag 1 0.221528 0.12217731 1.813 0.0706 0.62782059
Sanyo 1 0.140041 0.14335251 -0.977 0.3293

Iterative Regression 3

Analysis of Variance

Source DF Sum of Squares Mean Square F Value Prob>F
Model 16 102.21430 6.38839 185.730 0.0001
Error 365 12.55457 0.03440
C Total 381 114.76887
Root MSE 0.18546 R-square 0.8906
Dep Mean 5.17114 Adj R-sq 0.8858
C.V. 3.58648

Parameter Estimates

Variable DF Parameter Estimate Standard Error T for HO:Parameter=0 Prob > |T| Tolerance
INTERCEP 1 4.525727 0.04205034 107.626 0.0001 .
Sale Price 1 -0.100207 0.02051750 -4.884 0.0001 0.92125545
Above Stove 1 0.979198 0.02557297 38.290 0.0001 0.74753072
Capacity 1 0.316439 0.02881958 10.980 0.0001 0.82357154
Amana 1 0.406224 0.05346820 7.597 0.0001 0.95810121
Emerson 1 -0.277717 0.07782490 -3.568 0.0004 0.96160350
GE 1 0.202566 0.03050591 6.640 0.0001 0.80971564
Samsung 1 -0.183702 0.05186828 -3.542 0.0004 0.88717910
Whirlpool 1 0.151605 0.04836070 3.135 0.0019 0.85745856
Admiral 1 -0.229326 0.07260729 -3.158 0.0017 0.94947271
Kitchenaid 1 0.554401 0.09464594 5.858 0.0001 0.97009987
Maytag 1 0.193376 0.08074939 2.395 0.0171 0.89321220
Sanyo 1 -0.183975 0.10843536 -1.697 0.0906 0.98281091
Manual Ctrl 1 -0.196339 0.04476733 -4.386 0.0001 0.90554762
4 Stage 1 0.129928 0.02813420 4.618 0.0001 0.88334422
3 Stage 1 -0.037673 0.02421545 -1.556 0.1206 0.85263211
2 Stage 1 -0.030232 0.03383483 -0.894 0.3722 0.89913171

Iterative Regression 4

Analysis of Variance

Source DF Sum of Squares Mean Square F Value Prob>F
Model 18 103.29224 5.73846 181.504 0.0001
Error 363 11.47663 0.03162
C Total 381 114.76887
Root MSE 0.17781 R-square 0.9000
Dep Mean 5.17114 Adj R-sq 0.8950
C.V. 3.43849

Parameter Estimates

Variable DF Parameter Estimate Standard Error T for HO:Parameter=0 Prob > |T| Tolerance
INTERCEP 1 4.593608 0.04792610 95.848 0.0001 .
Sale Price 1 -0.093331 0.01974323 -4.727 0.0001 0.91451638
Above Stove 1 0.878295 0.03425917 25.637 0.0001 0.38285716
Capacity 1 0.324539 0.02798272 11.598 0.0001 0.80296292
Amana 1 0.425151 0.05153959 8.249 0.0001 0.94780636
Emerson 1 -0.267639 0.07479585 -3.578 0.0004 0.95692316
GE 1 0.169177 0.03005411 5.629 0.0001 0.76681679
Samsung 1 -0.180404 0.04962886 -3.635 0.0003 0.89072827
Whirlpool 1 0.153733 0.04620027 3.328 0.0010 0.86359135
Admiral 1 -0.229515 0.06981933 -3.287 0.0011 0.94382304
Kitchenaid 1 0.524648 0.09140238 5.740 0.0001 0.95610239
Maytag 1 0.176421 0.07814033 2.258 0.0246 0.87676176
Sanyo 1 -0.196633 0.10410684 -1.889 0.0597 0.98005893
Manual Ctrl 1 -0.191767 0.04333815 -4.425 0.0001 0.88816149
4 Stage 1 0.123006 0.02609389 4.714 0.0001 0.94388785
BI Sensor 1 0.100476 0.02714295 3.702 0.0002 0.84849621
Recess Tray 1 -0.039121 0.02278787 -1.717 0.0869 0.85301826
Rotate Tray 1 -0.099492 0.03339411 -2.979 0.0031 0.86946641
Remove Rack 1 0.122349 0.03861730 3.168 0.0017 0.38830801

Iterative Regression 5

Analysis of Variance

Source DF Sum of Squares Mean Square F Value Prob>F
Model 23 104.74553 4.55415 162.659 0.0001
Error 358 10.02334 0.02800
C Total 381 114.76887
Root MSE 0.16733 R-square 0.9127
Dep Mean 5.17114 Adj R-sq 0.9071
C.V. 3.23578

Parameter Estimates

Variable DF Parameter estimate Standard Error T for HO:Parameter=o Prob > |T| Tolerance
INTERCEP 1 4.509110 0.05139316 87.738 0.0001 .
Sale Price 1 -0.081705 0.01880387 -4.345 0.0001 0.89280155
Above Stove 1 0.911939 0.02580640 35.338 0.0001 0.59752630
Capacity 1 0.329449 0.02662205 12.375 0.0001 0.78562243
Amana 1 0.431729 0.04916347 8.782 0.0001 0.92243960
Emerson 1 -0.234625 0.07157220 -3.278 0.0011 0.92547530
GE 1 0.186048 0.02807473 6.627 0.0001 0.77819702
Samsung 1 -0.164814 0.04725484 -3.488 0.0005 0.87004705
Whirlpool 1 0.181595 0.04367254 4.158 0.0001 0.85585823
Admiral 1 -0.205690 0.06595919 -3.118 0.0020 0.93651069
Kitchenaid 1 0.490554 0.08649093 5.672 0.0001 0.94558316
Maytag 1 0.181547 0.07368047 2.464 0.0142 0.87327043
Sanyo 1 -0.190746 0.09819304 -1.943 0.0529 0.97559775
Manual Ctrl 1 -0.142937 0.04493488 -3.181 0.0016 0.73162229
4 Stage 1 0.091510 0.02516526 3.636 0.0003 0.89870451
BI Sensor 1 0.107924 0.02628174 4.106 0.0001 0.80145144
Recess Tray 1 -0.027766 0.02156569 -1.288 0.1987 0.84345235
Rotate Tray 1 -0.062352 0.03230478 -1.930 0.0544 0.82277369
Auto Roast 1 0.003277 0.02899576 0.113 0.9101 0.64966392
Auto Sensor 1 0.044087 0.01952391 2.258 0.0245 0.76945439
Convection 1 0.328550 0.04592900 7.153 0.0001 0.81710298
Auto Defrost 1 0.007119 0.02877048 0.247 0.8047 0.76542094
Dual Cook 1 0.013312 0.03037813 0.438 0.6615 0.69817190
Temp Cook 1 0.002361 0.02198576 0.107 0.9145 0.72061043

Iterative Regression 6

Analysis of Variance

Source DF Sum of Squares Mean Square F Value Prob>F
Model 24 104.68543 4.36189 154.431 0.0001
Error 357 10.08344 0.02824
C Total 381 114.76887
Root MSE 0.16806 R-square 0.9121
Dep Mean 5.17114 Adj R-sq 0.9062
C.V. 3.25001

Parameter Estimates

Variable DF Parameter Estimate Standard Error T for HO:Parameter=0 Prob > |T| Tolerance
INTERCEP 1 4.537325 0.05009999 90.565 0.0001 .
Sale Price 1 -0.082518 0.01878190 -4.394 0.0001 0.90277927
Above Stove 1 0.926772 0.02428667 38.160 0.0001 0.68059229
Amana 1 0.445959 0.04994300 8.929 0.0001 0.90174753
Emerson 1 -0.220357 0.07185834 -3.067 0.0023 0.92621207
GE 1 0.185963 0.02871920 6.475 0.0001 0.75021779
Samsung 1 -0.157170 0.04787035 -3.283 0.0011 0.85529007
Whirlpool 1 0.173666 0.04424790 3.925 0.0001 0.84109417
Admiral 1 -0.190444 0.06667563 -2.856 0.0045 0.92457117
Kithchenaid 1 0.498982 0.08738574 5.710 0.0001 0.93448201
Maytag 1 0.166235 0.07419496 2.241 0.0257 0.86879226
Sanyo 1 -0.164616 0.09856197 -1.670 0.0958 0.97684289
Manual Ctrl 1 -0.170454 0.04373979 -3.897 0.0001 0.77895434
4 Stage 1 0.098934 0.02572974 3.845 0.0001 0.86728182
Sensor 1 0.067345 0.01983708 3.395 0.0008 0.75690296
Rotate Tray 1 -0.060431 0.03227088 -1.873 0.0619 0.83177077
Convection 1 0.329551 0.04585171 7.187 0.0001 0.82708655
Auto Start 1 -0.006278 0.01860806 -0.337 0.7360 0.85473709
Recipe List 1 0.021693 0.01891105 1.147 0.2521 0.88030517
Child Lock 1 -0.017376 0.01845193 -0.942 0.3470 0.88916519
Word Prompt 1 0.033961 0.01946659 1.745 0.0819 0.78066503
Multilingual 1 0.013801 0.02576376 0.536 0.5925 0.76128399
MFG Audio 1 0.061670 0.03905693 1.579 0.1152 0.82321522
Popcorn Key 1 -0.042231 0.02829633 -1.492 0.1365 0.81177457

Iterative Regression 7

Analysis of Variance

Source DF Sum of Squares Mean Square F Value Prob>F
Model 24 105.28649 5.01364 190.344 0.0001
Error 357 9.48238 0.02634
C Total 381 114.76887
Root MSE 0.16230 R-square 0.9174
Dep Mean 5.17114 Adj R-sq 0.9126
C.V. 3.13850

Parameter Estimates

Variable DF Parameter Estimate Standard Error T for HO:Parameter=0 Prob > |T| Tolerance
INTERCEP 1 4.404413 0.04057410 108.552 0.0001 .
Sale Price 1 -0.076513 0.01865516 -4.101 0.0001 0.85336966
Above Stove 1 0.929792 0.02354914 39.483 0.0001 0.67506796
Capacity 1 0.341148 0.02642459 12.910 0.0001 0.75018137
Amana 1 0.463924 0.05090968 9.113 0.0001 0.80929688
Emerson 1 -0.195721 0.06946698 -2.817 0.0051 0.92423492
GE 1 0.194116 0.02851440 6.808 0.0001 0.70970563
Samsung 1 -0.120580 0.04662448 -2.586 0.0101 0.84080048
Whirlpool 1 0.141527 0.04311139 3.283 0.0011 0.82626704
Admiral 1 -0.172665 0.06451252 -2.676 0.0078 0.92100310
Kitchenaid 1 0.463217 0.08416469 5.504 0.0001 0.93943484
Maytag 1 0.118667 0.07206316 1.647 0.1005 0.85884072
Sanyo 1 -0.222003 0.09611049 -2.310 0.0215 0.95802381
Manual Ctrl 1 -0.189924 0.04043999 -4.696 0.0001 0.84980174
4 Stage 1 0.103933 0.02441391 4.257 0.0001 0.89831896
Sensor 1 0.056403 0.01833216 3.077 0.0023 0.82649944
Convection 1 0.327005 0.04301052 7.603 0.0001 0.87657131
Korea 1 -0.070262 0.02727961 -2.576 0.0104 0.69983390
Appliance 1 0.078701 0.02107512 3.734 0.0002 0.64384385
Warehouse 1 -0.223155 0.08506270 -2.623 0.0091 0.91970424
A-SIZE NE 1 0.067040 0.02771624 2.419 0.0161 0.84744738
A-SIZE West 1 0.069461 0.02521600 2.755 0.0062 0.85421573

Attachment 4

The graph above shows the percent of large and midsize countertop microwave ovens bought new between 1995 and 1999 that were ever repaired or had a serious problem that was not repaired. The data apply to all models within a brand and do not account for manufacturing changes that could affect the reliability of current models. Source: Consumer Reports, December 1999, page 31.

The graph above shows numeric values of the implicit prices, or parameter estimates, estimated for microwave oven brands included in the hedonic model for this product. Brands with negative parameter estimates represent, on average, microwave ovens of inferior quality while brands with positive parameter estimates represent, on average, microwave ovens of superior quality.

Attachment 5

1999-2000 U.S. Level Price Relatives, Indexes and

Index Percent Changes for CPI Item SEHK01, Major Appliances

US level Item SEHK01, Major Appliances

Microwave Oven (HK014 - 01A) quality adjustments

Without Quality Adjustments

With Quality Adjustments

Price relatives

Indexes

1 Mo % Chng

Price relatives

Indexes

1 Mo % Chng

Month

Jul-99

97.310

97.310

Aug-99

1.00047

97.356

0.05

1.00136

97.442

0.14

Sep-99

1.00784

98.119

0.78

1.00773

98.196

0.77

Oct-99

0.99630

97.756

-0.37

0.99588

97.791

-0.41

Nov-99

1.00807

98.545

0.81

1.00765

98.539

0.76

Dec-99

0.99816

98.364

-0.18

0.99827

98.369

-0.17

Jan-00

0.99239

97.615

-0.76

0.99185

97.567

-0.81

Feb-00

0.99923

97.540

-0.08

0.99930

97.499

-0.07

Mar-00

1.00324

97.856

0.32

1.00237

97.730

0.24

Apr-00

1.00319

98.168

0.32

1.00319

98.041

0.32

July to Apr

0.881

0.751

Aug to Apr

0.834

0.614

Attachment 6

Attachment 7


 BUREAU OF LABOR STATISTICS             U.S. DEPARTMENT OF LABOR
   CONSUMER PRICE INDEX - ELI CHECKLIST                                                     
 collection             outlet                       quote            arranging
 period: __ __ __ __    number: __ __ __ __ __ __ __ code: __ __ __     code:  __ __ __ __
 _________________________________________________________________________________________
 ELI No./                                                                     cluster
 title        HK014 MICROWAVE OVENS                                            code   01A
 item availability:    1-AVAILABLE    2-ELI NOT SOLD     3-INIT INCOMPLETE
 purpose of checklist: 1-INIT   2-INIT COMPL  3-SPEC CORR   4-SUB   5-REINIT   6-CHECK REV
 _________________________________________________________________________________________
           CURRENT PERIOD                    |      SALES TAX
                                             |
           price _ _ _ _ _ _ . _ _ _         |      included:        YES    NO
                                             |
           type of price:  REG   SALE        |
                                             |
                                               |                                            
             |
 YEAR-ROUND  |  in-season:  JAN  FEB  MAR  APR  MAY  JUN  JUL  AUG  SEP  OCT  NOV  DEC
 ____________|____________________________________________________________________________
 respondent:                                   location:
 _________________________________________________________________________________________
 field message:
 _________________________________________________________________________________________
  TYPE                                        CAVITY CUBIC FEET
    A1  Table/countertop without             (Full-size models)
          optional mounting                     D1  1.8 cubic feet
    A2  Built-in above the stove                D2  1.7 cubic feet
          or over-the-range                     D3  1.6 cubic feet
    A3  Mounted under cabinet                   D4  1.5 cubic feet
    A4  Table/countertop with optional          D5  1.4 cubic feet
          mounting, mounting included           D6  1.3 cubic feet
          in base price                         D7  1.2 cubic feet
    A5  Table/countertop with optional          D8  1.1 cubic feet
          mounting, mounting has extra       (Midsize models)
          charge                                D9  1.0 cubic foot
                                               D10  0.9 cubic feet
 BRAND                                         D11  0.8 cubic feet
    B1  Amana                                (Compact models)
    B2  Emerson                                D12  0.7 cubic feet
    B3  General Electric (GE)                  D13  0.6 cubic feet
    B4  Goldstar                               D14  0.5 cubic feet
    B5  Kenmore                                D99  Other cubic feet,
    B6  Panasonic
    B7  Samsung                                     ______________________________
    B8  Sharp/Sharp Carousel
    B9  Whirlpool                             MAXIMUM WATT COOKING POWER
   B99  Other brand,                            E1  1100 watts
                                                E2  1000 watts
        ______________________________          E3  950 watts
                                                E4  900 watts
 ** MANUFACTURER'S MODEL NUMBER                 E5  850 watts
                                                E6  800 watts
   C99  ______________________________          E7  750 watts
                                                E8  700 watts
                                                E9  650 watts
                                               E10  600 watts
                                               E99  Other wattage,
 
                                                    _____________________________
 
 
                  
 
 
 ZZ99
 _________________________________________________________________________________________
 BLS 3400B 			                                         HK014 page 1 of 2
                                                                         Revised June 1999
 
HK014 - MICROWAVE OVENS - CONTINUED
TYPE OF CONTROLS INSTALLATION KITS FOR BUILT-INS OR F1 Touch sensitive/electronic MOUNTABLE MICROWAVE OVENS F2 Push buttons (A2 and A3 only) F99 Other controls, AG1 Standard installation kit for built-ins or mountables ______________________________ (excludes exhaust hood and fan) AG2 Standard installation kit for NUMBER OF POWER SETTINGS (LEVELS) built-ins or mountables G1 10 power settings includes exhaust hood only G99 Other number of power settings, AG3 Standard installation kit for built-ins or mountables _______________________________ includes exhaust hood and fan NUMBER OF PRE-SET MEMORY PROGRAMMING OPTIONAL INSTALLATION KITS COOKING OPERATIONS/STAGES (A4 and A5 only) H1 4 stage programming AH1 Installation kit incl., excludes H2 3 stage programming exhaust hood and fan (Go to AI79) H3 2 stage programming AH2 Installation kit included with H4 No stage programming available exhaust hood (Go to AI79) H99 Other number of pre-set memory AH3 Installation kit included with programming cooking operations/stages, exhaust hood and fan (Go to AI79) AH4 No installation kit available _______________________________ AI79 Charge for optional install. kit CAVITY FEATURES ___________________// $________ I1 Insertable cooking probe or built-in sensor MANUFACTURER WARRANTY J1 Recessed tray AJ1 One year parts and labor K1 Removable tray AJ99 Other warranty, L1 Rotating or carousel tray M1 Removable rack for 2 level cooking _______________________________ N99 Other cavity features, COUNTRY OF ORIGIN _______________________________ AK1 United States AK2 Japan COOKING FEATURES AK99 Other country of origin, P1 Auto Roast Q1 Auto sensor _______________________________ R1 Convection cook S1 Convection broil DELIVERY T1 Defrost cycle/auto defrost AL1 Delivery available, no extra charge U1 Dual cooking AL2 Delivery available, extra charge V1 Temp cook/hold AL3 No delivery available W99 Other cooking features, AM79 Extra charge for delivery, _______________________________ __________________// $________ OTHER PRICE FACTORS PROGRAMMING FEATURES X1 Auto start AN99 ______________________________ Y1 Built in recipe list for preparing different foods AP99 ______________________________ AA1 Child lockout AB1 Word prompting displays AQ99 ______________________________ AC1 Multi-lingual displays AD1 Manufacturer audio instructions/ ** OTHER CLARIFYING INFORMATION audio message capability AE1 Popcorn key AR99 ______________________________ AF99 Other programming features, AS99 ______________________________ _____________________________ AT99 ______________________________ PRICE CALCULATION BOX AU79 Microwave base price, __________________________________// $__________ AV89 TOTAL PRICE (AI79 + AM79 + AU79), __________________________________// $__________

Last Modified Date: October 16, 2001

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