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Waves in Consumption with Interdependence among Consumers

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  • Cowan,Robin
  • Cowan,William
  • Swann,Peter

    (MERIT)

Abstract

This paper presents a model to analyze the development of consumption patterns when there are social interactions among consumers. In particular a consumer in this model recognizes three reference groups: a peer group of similar consumers with whom the consumer wishes to share consumption activities; a distinction group from which the consumer wishes to distinguish him- or herself; and an aspiration group, to which the consumer does not belong but wishes that he/she did, and with whom the consumer would like to share consumption activities. The interplay of aspiration and distinction can lead to "waves" in consumption. These can happen when, for example, the avant- garde consumption of up-market pioneers is copied by other types of consumer: as the latter aspire to emulate the former, the former in turn seek to distinguish themselves from these unwelcome companions by varying their consumption. In consequence a particular consumption activity may start up-market, an then gradually proceed down the social spectrum. More complex patterns with continuing cycles in consumption can also be found. The paper argues that this model is not only applicable to the consumption behaviour of an elite (or would-be elite) but is relevant in a wide range of consumption settings.

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Bibliographic Info

Paper provided by Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) in its series Research Memorandum with number 007.

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Date of creation: 1998
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Handle: RePEc:unm:umamer:1998007

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Keywords: microeconomics ;

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References

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  1. An, M Y & Kiefer, N M, 1995. "Local Externalities and Societal Adoption of Technologies," Journal of Evolutionary Economics, Springer, vol. 5(2), pages 103-17, June.
  2. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
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Cited by:
  1. Babutsidze, Zakaria, 2009. "Learning How to Consume and Returns to Product Promotion," MERIT Working Papers 018, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Giorgio Fagiolo, 2001. "Coordination, Local Interactions and Endogenous Neighborhood Formation," LEM Papers Series 2001/15, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  3. Fagiolo, Giorgio, 2005. "Endogenous neighborhood formation in a local coordination model with negative network externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 29(1-2), pages 297-319, January.
  4. Eckerstorfer, Paul & Wendner, Ronald, 2013. "Asymmetric and non-atmospheric consumption externalities, and efficient consumption taxation," Journal of Public Economics, Elsevier, vol. 106(C), pages 42-56.
  5. Giulia Iori & Vassilis Koulovassilopoulos, 1999. "Patterns of consumption in socio-economic models with heterogeneous interacting agents," Papers cond-mat/9909131, arXiv.org.
  6. Pesaran, M.H. & Tosetti, E., 2007. "Large Panels with Common Factors and Spatial Correlations," Cambridge Working Papers in Economics 0743, Faculty of Economics, University of Cambridge.
  7. Floortje Alkemade & Carolina Castaldi, 2005. "Strategies for the Diffusion of Innovations on Social Networks," Computational Economics, Society for Computational Economics, vol. 25(1), pages 3-23, February.
  8. Zakaria Babutsidze, 2011. "Returns to product promotion when consumers are learning how to consume," Journal of Evolutionary Economics, Springer, vol. 21(5), pages 783-801, December.

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