Demand with Consumption Externalities
This paper studies stability and slope properties of market demand when disaggregated consumption externalities exist. Equilibrium is stable when feedback effects are limited, where feedback effects exist when own demand is indirectly affected by own consumption. Market demand is downward sloping if consumption externalities are not too strong and negative consumption externalities are not too varied. Under purely positive consumption externalities market demand is downward sloping in any stable equilibrium. Demand may be stable and upward sloping when negative consumption externalities exist. Under purely negative consumption externalities, upward sloping demand requires at least one "spoiler" whose consumption has a cumulatively large negative effect on others' demand.
|Date of creation:||Apr 2014|
|Date of revision:||Apr 2014|
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