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In this paper a central law on economies of scale in computer hardware pricing, Grosch's law is discussed. The history and various validation efforts are examined in detail. It is shown how the last set of validations during the eighties may be interpreted as a statistical misinterpretation, although this effect may have been present in all validation attempts, including the earliest ones. Simulation experiments reveal that constant returns to scale in combination with decreasing computer prices may give the illusion of Grosch's law when performing regression models against computer prices over many years. The paper also shows how the appropriate definition of computer capacity, and in particular Kleinrock's power definition, plays a central role in economies of scale for computer prices. ispartof: DTEW Research Report 9631 pages:1-19 status: published |
