Valuing the quantity and quality of product variety to consumers

Daniel Melser

Empirical Economics, 2019, vol. 57, issue 6, No 13, 2107-2128

Abstract: 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.

Keywords: Scanner data; Consumer Price Index (CPI); Quality change; New goods; Multilateral indexes; CES (search for similar items in EconPapers)
JEL-codes: C43 D12 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-018-1532-6

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