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Durable goods and conformity

  • Christopher L. House
  • Emre Ozdenoren

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. Copyright (c) 2008, RAND.

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Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 2 ()
Pages: 452-468

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Handle: RePEc:bla:randje:v:39:y:2008:i:2:p:452-468
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  1. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. I. Hendel & A. Lizzeri, 1999. "The Role of Leasing under Adverse Selection," Princeton Economic Theory Papers 99f7, Economics Department, Princeton University.
  4. Christopher L. House & John V. Leahy, 2000. "An sS Model with Adverse Selection," NBER Working Papers 8030, National Bureau of Economic Research, Inc.
  5. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
  6. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  7. Igal Hendel & Alessandro Lizzeri, 1997. "Adverse Selection in Durable Goods Markets," NBER Working Papers 6194, National Bureau of Economic Research, Inc.
  8. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
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  10. Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1995. "Social Norms and Random Matching Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 79-109, April.
  11. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
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