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Valuing the quantity and quality of product variety to consumers

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  • Daniel Melser

    (Monash University)

Abstract

This paper presents a new decomposition of the cost of living into price, variety-quality and variety-quantity components. Variety-quantity reflects the value to consumers of an increase in the number of products, while variety-quality measures the average attractiveness of new versus disappearing products. The decomposition is relevant to calculation of the CPI and understanding firms’ product development practices. Our empirical results, using a large US scanner data set, show that variety-quality change is the most important component of variety improvement. This reduced the cost of living by 1.34 percentage points per annum on average, while variety-quantity lowered it by 0.67 percentage points.

Suggested Citation

  • Daniel Melser, 2019. "Valuing the quantity and quality of product variety to consumers," Empirical Economics, Springer, vol. 57(6), pages 2107-2128, December.
    • Handle: RePEc:spr:empeco:v:57:y:2019:i:6:d:10.1007_s00181-018-1532-6
    DOI: 10.1007/s00181-018-1532-6
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    References listed on IDEAS

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    Cited by:

    1. Daniel Melser & Michael Webster, 2021. "Multilateral Methods, Substitution Bias, and Chain Drift: Some Empirical Comparisons," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(3), pages 759-785, September.

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    More about this item

    Keywords

    Scanner data; Consumer Price Index (CPI); Quality change; New goods; Multilateral indexes; CES;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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