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Dynamics of Consumer Demand for New Durable Goods

  • Gautam Gowrisankaran

    (Washington University in St. Louis and NBER)

  • Marc Rysman

    ()

    (Department of Economics, Boston University)

This paper specifies and estimates a dynamic model of consumer preferences for new durable goods with persistent heterogeneous consumer tastes, rational expectations about future products and repeat purchases over time. Most new consumer durable goods, particularly consumer electronics, are characterized by relatively high initial prices followed by rapid declines in prices and improvements in quality. The evolving nature of product attributes suggests the importance of modeling dynamics in estimating consumer preferences. We estimate the model on the digital camcorder industry using a panel data set on prices, sales and characteristics. We find that dynamics are a very important determinant of consumer preferences and that estimated coefficients are more plausible than with traditional static models. We use the estimates to investigate the value of new consumer goods and intertemporal elasticities of demand.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2007-024.

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Length: 57pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:bos:wpaper:wp2007-024
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