Brand Loyalty, Volume of Trade and Leapfrogging: Consumer Behavior in Markets of Durable Experience Goods

Gonzalo Paredes ()

No 31, Working Papers from Peruvian Economic Association

Abstract: We present a dynamic model that addresses how the interaction between durability and experience affects consumers’ replacement decisions. Despite obsolescence, consumers keep used goods because of quality uncertainty of new goods. Contrary to adverse selection articles, incomplete trade in secondary markets can be efficient provided experience involves idiosyncratic tastes. As some consumers decide which vintage to buy depending on past experiences, brand loyalty can be higher for new goods. When consumers’ expected experience differs across brands, the best brand exhibits higher loyalty, larger sales, longer ownership spells, and higher resale prices, results consistent with evidence from the U.S. automobile industry.

Keywords: Durable goods; experience goods; consumer behavior (search for similar items in EconPapers)
JEL-codes: D82 D83 L15 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-com, nep-ipr, nep-pr~ and nep-mkt
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Persistent link: https://EconPapers.repec.org/RePEc:apc:wpaper:2015-031

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