This two-part study aims to identify and quantify the determinants of the price of Apple iPods sold on eBay in the late pre-iPhone era (2006). Specifically, we are interested in the final auction price of an operational 4 GB iPod mini. Suppose you've come up with the following specification:1 price = Bo + Bibidrs + B₂blue + B3pink + B40clr + Benclr + Borefb + B7new + Bsunkn + B⁹cdef + ε where: price = the final auction price of the iPod ($) (1)

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This two-part study aims to identify and quantify the determinants of the price of
Apple iPods sold on eBay in the late pre-iPhone era (2006). Specifically, we are
interested in the final auction price of an operational 4 GB iPod mini.
Suppose you've come up with the following specification:1
price - Bo + Bibidrs + B2blue + B3pink + B40clr + Banclr + Borefb +
B7new + Beunkn + B9cdef + &
where: price = the final auction price of the iPod ($)
bidrs = the number of bidders in the auction
blue = 1 if the color of the iPod is blue, 0 otherwise
pink = 1 if the color of the iPod is pink. 0 otherwise
oclr = 1 if the color of the iPod is other than silver, blue, or pink,
0 otherwise
nclr = 1 if the color is not reported: 0 otherwise
refb= 1 if the iPod is refurbished, 0 otherwise
new = 1 if the iPod is new. 0 otherwise
unkn = 1 if whether the iPod is new, refurbished, or used is unknown.
0 otherwise
cdef =
(1)
1 if the iPod has a cosmetic defect (such as a scratch). 0 otherwise
(for new and refurbished items, cdef = 0 by definition)
Question 1
In the equation above, the dummy variable oclr indicates the color category "other
than silver, blue, or pink." But there is no variable for the silver color in the
equation. Is this an error in the oclr category definition? Explain your answer.
Question 2
What is the reference (base) category for the iPod's condition? Explain.
Hint: Since new and refurbished items have no defects (by definition), the uniquely
defined condition categories are "new," "refurbished," "used with no defects," and "used
with defects."
Transcribed Image Text:This two-part study aims to identify and quantify the determinants of the price of Apple iPods sold on eBay in the late pre-iPhone era (2006). Specifically, we are interested in the final auction price of an operational 4 GB iPod mini. Suppose you've come up with the following specification:1 price - Bo + Bibidrs + B2blue + B3pink + B40clr + Banclr + Borefb + B7new + Beunkn + B9cdef + & where: price = the final auction price of the iPod ($) bidrs = the number of bidders in the auction blue = 1 if the color of the iPod is blue, 0 otherwise pink = 1 if the color of the iPod is pink. 0 otherwise oclr = 1 if the color of the iPod is other than silver, blue, or pink, 0 otherwise nclr = 1 if the color is not reported: 0 otherwise refb= 1 if the iPod is refurbished, 0 otherwise new = 1 if the iPod is new. 0 otherwise unkn = 1 if whether the iPod is new, refurbished, or used is unknown. 0 otherwise cdef = (1) 1 if the iPod has a cosmetic defect (such as a scratch). 0 otherwise (for new and refurbished items, cdef = 0 by definition) Question 1 In the equation above, the dummy variable oclr indicates the color category "other than silver, blue, or pink." But there is no variable for the silver color in the equation. Is this an error in the oclr category definition? Explain your answer. Question 2 What is the reference (base) category for the iPod's condition? Explain. Hint: Since new and refurbished items have no defects (by definition), the uniquely defined condition categories are "new," "refurbished," "used with no defects," and "used with defects."
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