Pricing Methods
20th MEETING OF THE VOORBURG GROUP
Helsinki, Finland
2005
Producer price index for services
Pricing methods by
Aurél Kenessey (CBS, Netherlands)
Benoît Buisson (INSEE, France)
Richard McKenzie (OECD)
2
1. Introduction
The term pricing method in the context of compiling price indices would probably be regarded by most price statisticians as a common concept. However when one attempts to find a definition for this concept, or indeed a definition for various types of pricing methods, the inadequacy of the current literature becomes apparent. This is particularly true in the case of producer price indices for service industries
(SPPI), where defining pricing methods is crucial in many respects.
This paper aims to review references to pricing methods in the current literature in respect to SPPI, and to develop a list of criteria which may help to distinguish between different pricing methods used in SPPI and how they relate to the ideal goal of pricing to constant quality.
1.1 What are pricing methods?
This paper is about pricing methods, for which the following definition is proposed:
the use of a specific type of information on prices to represent the evolution of price in price index compilation. The specific type of information specifies the method.
As this sounds quite abstract an example is informative: the unit value method is the use of income divided by quantities sold as price information in price index calculation.
The ideal pricing method is transaction pricing, which is the use of actually paid prices of individual transactions that are repeated in every survey period. Price index theory is built on the assumption that this ideal pricing method is used or sufficiently approximated. However pricing methods in practice, and especially in that of SPPI, stray from this ideal. The closer a pricing method is to transaction pricing the better. Therefore, a pricing method can be rated according to how it compares to transaction
Helsinki, Finland
2005
Producer price index for services
Pricing methods by
Aurél Kenessey (CBS, Netherlands)
Benoît Buisson (INSEE, France)
Richard McKenzie (OECD)
2
1. Introduction
The term pricing method in the context of compiling price indices would probably be regarded by most price statisticians as a common concept. However when one attempts to find a definition for this concept, or indeed a definition for various types of pricing methods, the inadequacy of the current literature becomes apparent. This is particularly true in the case of producer price indices for service industries
(SPPI), where defining pricing methods is crucial in many respects.
This paper aims to review references to pricing methods in the current literature in respect to SPPI, and to develop a list of criteria which may help to distinguish between different pricing methods used in SPPI and how they relate to the ideal goal of pricing to constant quality.
1.1 What are pricing methods?
This paper is about pricing methods, for which the following definition is proposed:
the use of a specific type of information on prices to represent the evolution of price in price index compilation. The specific type of information specifies the method.
As this sounds quite abstract an example is informative: the unit value method is the use of income divided by quantities sold as price information in price index calculation.
The ideal pricing method is transaction pricing, which is the use of actually paid prices of individual transactions that are repeated in every survey period. Price index theory is built on the assumption that this ideal pricing method is used or sufficiently approximated. However pricing methods in practice, and especially in that of SPPI, stray from this ideal. The closer a pricing method is to transaction pricing the better. Therefore, a pricing method can be rated according to how it compares to transaction
References: Bathgate, Diane (2004) Price indexes for property and casualty insurance, Voorburg Group paper. Diewert, W.E. (2003) Services and the new economy: data needs and challenges IMF et.al (2004) Producer Price Index Manual, theory and practice OECD and Eurostat (Joint OECD-Eurostat Task Force on service prices in short-term statistics) (2005) Methodological guide for developing producer price indices for services Page, William J. (2004) , The US producer price index for scheduled air passenger transport, Voorburg Group paper. Statistics Canada (2004) A proposal for improving business services price indexes 15