Hedonic Price Indexes for Spreadsheets and an Empirical Test of the Network Extrenalities Hypothesis

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Abstract
In this paper, I first estimate and interpret hedonic price equations for computer spreadsheet programs and then use the analysis to empirically test whether network externalities exist in this industry. The results from this study are that consumers are willing to pay a significant premium for spreadsheets that are compatible with the Lotus platform and for spreadsheets that offer links to external data bases, and a smaller premium for spreadsheets that offer local area network compatibility. These results support the hypothesis that the computer spreadsheet market exhibits network externalities. The data also show that with the exception of the "network" features, the qualities most valued by consumers are basic rather than sophisticated. Finally, the quality—adjusted (real) price of computer spreadsheets has fallen by approximately 15 percent per annum over the last five years.
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