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Abstract:
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Measuring price change for apparel items is a challenge for the Consumer Price Index (CPI) due to its seasonal nature and rapid turnover. Items are offered for sale at high prices, and then marked down through the season. At the beginning of the next season, the items for sale at high prices are different than the items from the prior season. Linking out the item changeover leads to a downward bias in the resulting price index. Much of the traditional treatment of apparel prices aims to correct this downward bias by comparing across models to the extent possible. Quality adjustments and group mean imputation have significantly improved the measurement of apparel price change. This traditional approach assumes homogeneity of consumers across the time period of measure. Recent research on price measurement of new vehicles proposes that the seasonal nature of new vehicle prices is due not to pure price change, but rather to retailer price discrimination and consumer heterogeneity across time periods. This paper explores whether a similar effect occurs in the apparel market, proposes an alternative approach, and attempts to quantify its impact using both survey and experimental data.
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