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Dynamics of Consumer Demand for New Durable Goods

Author

Listed:
  • Marc Rysman

    (Department of Economics, Boston University)

  • Gautam Gowrisankaran

    (University of Arizona, HEC Montreal and NBER)

Abstract

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.

Suggested Citation

  • Marc Rysman & Gautam Gowrisankaran, 2011. "Dynamics of Consumer Demand for New Durable Goods," Boston University - Department of Economics - Working Papers Series WP2011-062, Boston University - Department of Economics.
    • Handle: RePEc:bos:wpaper:wp2011-062
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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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