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Durable Goods and Conformity

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  • Christopher L. House
  • Emre Ozdenoren

Abstract

Is the variety of products supplied in markets a reflection of the diversity of consumers' preferences? In this paper, we argue that the distribution of durable goods offered in markets tends to be compressed relative to the distribution of consumers' underlying preferences. In particular, there are strong incentives for conformity in markets for durable goods. The reason for conformity is natural: durables (for example houses) are traded and as a result, demand for these goods is influenced by their resale value. Agents may like one product, but purchase another because of resale concerns. We show that (1) there is a tendency to conform to the average preference; (2) conformity depends primarily on the number of people with extreme preferences; (3) conformity increases with increases in durability, patience, and the likelihood of trade; and (4) equilibrium conformity is not necessarily optimal. Surprisingly, there tends to be too little conformity in equilibrium. Conformity also creates a demand for rental markets. Renting does not necessarily decrease conformity however. Instead, renting tends to exaggerate conformity in the owner-occupied market.

Suggested Citation

  • Christopher L. House & Emre Ozdenoren, 2006. "Durable Goods and Conformity," NBER Working Papers 12028, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12028
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    References listed on IDEAS

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    1. Christopher L. House & John V. Leahy, 2004. "An sS Model with Adverse Selection," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 581-614, June.
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    Cited by:

    1. 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.
    2. Christopher L. House, 2008. "Fixed Costs and Long-Lived Investments," NBER Working Papers 14402, National Bureau of Economic Research, Inc.
    3. 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.
    4. House, Christopher L., 2014. "Fixed costs and long-lived investments," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 86-100.
    5. Halket, Jonathan R & Pignatti, Matteo, 2012. "Housing tenure choices with private information," Economics Discussion Papers 8961, University of Essex, Department of Economics.
    6. repec:esx:essedp:717 is not listed on IDEAS

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    JEL classification:

    • L0 - Industrial Organization - - General

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