Quality adjustment in practice – the use of consumer profiles

1. Quality adjustment in practice – the use of consumer profiles The market User needs Definitions and requirements Examples Advantages

2. Telecommunication (services) • rapid technological progress, • rapid changes caused by a highly competitive market

3. Price Index for telecom... • trade-off between • User needs and • Index producer needs - maximum flexibility • The main purposes of a price index for telecommunication service • Timeliness of the subindex • Need for indicators reflecting the impact of competition • Appropriateness of the deflators for national accounts

4. Consumer profiles • Comparison over time and between countries • Used by many countries for the mobile market • From the HICP manual – Consumer profiles: “An approach for tariff prices where typical ‘representative’ consumers are constructed with respect to their individual consumption and this type of consumption is traced.”

5. Minimum requirements • The representative items must be described in sufficient detail to capture price determining factors • A sufficient number of varied specifications for each representative item must be used • The specifications should be updated frequently • If a certain specification disappears, efforts should be made to find suitable comparable specifications or they should be made comparable either by quality or by quantity adjustment or redistribution

6. Fixed consumer profile approach • The profile is fixed above the provider of services • Consumer type with fixed weights • Estimates on different use • Statistical information? • Or judgmental/purposive approach Numerical example from Statistics Norway on mobile telephone tariffs

7. Example – Telecom - Norway

8. Example – Telecom - Norway

9. Example – Telecom - Norway

10. Critical Issues • Assumption of an economic behavior of the consumers • A consumer with a certain user profile will select the cheapest profile within a provider • Consumers can be forced into a certain tariff package for a certain time span • Enough information? • Sampling frame for the selection of tariff packages

11. Advantages • It is flexible enough to react on current developments in a changing market • The identification of appropriate package from each supplier and for each user profile is easier, subjective elements are eliminated • It takes account of substitution between tariff packages within provider

12. Questions or comments?