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Durable goods and conformity

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  • Christopher L. House
  • Emre Ozdenoren

Abstract

A consumer's demand for a durable good is governed not only by his individual preferences but also by preferences of other market participants. This interdependence of preferences arises from the inevitable resale of durable goods. If most people prefer goods with certain features, original buyers conform and choose goods with these features even if they do not like them. Using a matching model, we show there is always conformity in equilibrium. The incentive to conform is strongest for long‐lived durables and for people who trade frequently. If average preferences are sufficiently strong, there is always too little conformity in equilibrium.

Suggested Citation

  • Christopher L. House & Emre Ozdenoren, 2008. "Durable goods and conformity," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 452-468, June.
    • Handle: RePEc:bla:randje:v:39:y:2008:i:2:p:452-468
    DOI: 10.1111/j.0741-6261.2008.00022.x
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    Cited by:

    1. Christopher L. House, 2008. "Fixed Costs and Long-Lived Investments," NBER Working Papers 14402, National Bureau of Economic Research, Inc.
    2. Alessandro Gavazza & Alessandro Lizzeri & Nikita Roketskiy, 2014. "A Quantitative Analysis of the Used-Car Market," American Economic Review, American Economic Association, vol. 104(11), pages 3668-3700, November.
    3. Fleckinger, Pierre & Glachant, Matthieu & Tamokoué Kamga, Paul-Hervé, 2019. "Energy Performance Certificates and investments in building energy efficiency: A theoretical analysis," Energy Economics, Elsevier, vol. 84(S1).
    4. Igal Hendel & Aviv Nevo & François Ortalo-Magné, 2009. "The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com," American Economic Review, American Economic Association, vol. 99(5), pages 1878-1898, December.
    5. Christopher L. House & Emre Ozdenoren, 2008. "Durable goods and conformity," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 452-468, June.
    6. Christopher House, 2008. "Fixed Costs and Long-Lived Investments," 2008 Meeting Papers 3, Society for Economic Dynamics.
    7. House, Christopher L., 2014. "Fixed costs and long-lived investments," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 86-100.
    8. Francesco Nava & Pasquale Schiraldi, 2019. "Differentiated Durable Goods Monopoly: A Robust Coase Conjecture," American Economic Review, American Economic Association, vol. 109(5), pages 1930-1968, May.
    9. Fleckinger, Pierre & Glachant, Matthieu & Tamokoué Kamga, Paul-Hervé, 2019. "Energy Performance Certificates and investments in building energy efficiency: A theoretical analysis," Energy Economics, Elsevier, vol. 84(S1).
    10. Hyunseung Oh, 2019. "The Role of Durables Replacement and Second‐Hand Markets in a Business‐Cycle Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(4), pages 761-786, June.
    11. Halket, Jonathan R & Pignatti, Matteo, 2012. "Housing tenure choices with private information," Economics Discussion Papers 8961, University of Essex, Department of Economics.
    12. repec:esx:essedp:717 is not listed on IDEAS

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