Scottish Journal of Political Economy, Vol. 48, No. 1, February 2001 # Scottish Economic Society 2001. Published by Blackwell Publishers Ltd, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA ESTIMATING QUALITY-ADJUSTED PRICE CHANGES: METHOD AND APPLICATION TO VCRS Christos Ioannidis,  Mick Silver  and Bruce Webb  ABSTRACT This paper uses scanner data to generate estimates of quality-adjusted price changes for video-recorders. We use hedonic regressions to derive estimates of the changing worth of each quality component. These are then applied to weighted changes in the mix of quality attributes of products to derive estimates of quality- adjusted price QAP) changes. The data source used is electronic-point-of-sale EPOS) scanner data that are available for a wide range of goods. This study provides an example of how such methods can be more widely applied. The estimates of QAP changes correspond to constant-utility, `hedonic' cost-of-living indexes defined in economic theory as the ratio of expenditure functions at constant utility allowing for changing prices and characteristics of goods. This method is proposed as an improvement on the existing direct method, which takes its estimates directly from the coefficients associated with `time dummies' in a hedonic regression. We finally undertake a matching process, akin to that used by statistical offices, and compare the results. Direct comparisons with RPI estimates and these hedonic approaches are not easy since the approaches use quite different data sets. Our replication of a procedure akin to that used for the RPI on the scanner data set provides insights into sources of potential bias. I INTRODUCTION A major concern is whether the traditional approaches to constructing price indexes are capable of capturing the ever-evolving technological status of consumer goods. Nordhaus 1997, p. 39) in his study of the `true' price of lighting suggests that: ... we must distinguish between a goods price index that measures the price of inputs in the form of purchased goods and a characteristics price index that measures the implicit) price of the output in the form of services his emphasis). 48  Brunel University  Cardiff University