Empirical Economics

, Volume 57, Issue 6, pp 2107–2128 | Cite as

Valuing the quantity and quality of product variety to consumers

  • Daniel MelserEmail author


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.


Scanner data Consumer Price Index (CPI) Quality change New goods Multilateral indexes CES 

JEL Classification

C43 D12 031 

Supplementary material

181_2018_1532_MOESM1_ESM.pdf (71 kb)
Supplementary material 1 (pdf 71 KB)


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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Econometrics and Business StatisticsMonash UniversityClayton, MelbourneAustralia

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