CommSec today launched an iPod Index which compares the price of iPod nanos around the world to determine whether exchange rates are over or under-valued. It is, of course, based on the Big Mac Index but it is a poor substitute for the iTunes Index (both music and games) developed on this blog.
There are two reasons why the iPod index won’t work as well. First, it is tradeable (unlike the Big Mac or iTunes). So we would expect convergence to one price. To the extent that we don’t get that says nothing about exchange rates. Second, there are many reasons why there won’t be convergence including freight costs but also the consumer value of a iPod which will differ from country to country related to factors other than the iPod.
The iTunes Index suffers from neither of these issues. It is non-tradeable and so the prices purely reflect demand conditions. Second, it is unrelated to cost drivers save for copyright practices although these do not reflect real resource issues.
Here are some links to previous posts:
- 11th Feb, 2006: iTunes Index launched;
- 20th June, 2006: Aplia write-up;
- 31st August, 2006: iTunes Index featured in BRW;
- 15th September, 2006: launch of iTunes Games Index;
- 6th December, 2006: NZ joins iTunes Index.
By the way, the iTunes Index predicts a much larger rise in the US dollar than the iPod Index. Time will tell I guess.
Core Economics 
Apple arbitrarily sets iPod prices at psychologically satisfying numbers in the local currency. The iPod index is laughably inane.
LikeLike
another problem is that no doubt in two years time we will look at 2gb iPods with nostalgia. the beauty of the big mac index is there is a fair chance the burger will be around in years to come… we know that 2gb iPods won’t be, and i’m not so sure about iTunes…
LikeLike
Hi,
Yes, I put the iPod index together. Actually was very interested that the iTunes index was developed some time ago. So you beat me to the punch. Many congrats! – I thought it was an interesting concept – as it appears did you.
But we must remember not to take it too seriously. It throws up interesting questions, and that is the point, but PPP models can only work in theory as the real world has too many complications. The good news is that it gets everday folk thinking and talking about economics! All the best.
LikeLike
Thanks Craig. I was impressed by the level of publicity you achieved in so short a time.
I definitely agree that we should take all this with a grain of salt.
LikeLike
Salt index anybody?
LikeLike