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Dynamics of Consumer Demand for New Durable Goods

  • Marc Rysman

    ()

    (Department of Economics, Boston University)

  • Gautam Gowrisankaran

    ()

    (University of Arizona, HEC Montreal and NBER)

Most new consumer durable goods experience rapid declines in prices and improvements in qual- ity, suggesting the importance of modeling dynamics. This paper estimates a dynamic model of consumer preferences for new durable goods with persistent heterogeneous consumer tastes, rational expectations and repeat purchases over time. We estimate the model on the digital camcorder in- dustry using panel data on prices, sales and characteristics. We nd that standard COLIs overstate welfare gain in later periods due to a changing composition of buyers. The one-year industry elas- ticity in response to a transitory industry-wide price shock is about 25% less than the one-month elasticity.

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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 WP2011-062.

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Length: 45 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:bos:wpaper:wp2011-062
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