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Dynamics of Consumer Demand for New Durable Goods

  • Gautam Gowrisankaran
  • Marc Rysman

Most new consumer durable goods experience rapid prices declines and quality improvements, suggesting the importance of modeling dynamics. This paper specifies a dynamic model of consumer preferences for new durable goods with persistently heterogeneous consumer tastes, rational expectations, and repeat purchases over time. We estimate the model on the digital camcorder industry using panel data on prices, sales and characteristics. We find that the one-year elasticity in response to a transitory industry-wide price shock is about 25% less than the one-month elasticity. Standard cost-of-living indices overstate welfare gain in later periods due to a changing composition of buyers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14737.

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Date of creation: Feb 2009
Date of revision:
Publication status: published as "Dynamics of Consumer Demand for New Durable Goods," (with Marc Rysman) (Journal of Political Economy 120, 1173-1219, 2012)
Handle: RePEc:nbr:nberwo:14737
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