EconPapers    
Economics at your fingertips  
 

Durable Goods and Conformity

Christopher House () and Emre Ozdenoren

No 12028, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: L0 (search for similar items in EconPapers)
Date: 2006-02
New Economics Papers: this item is included in nep-mic
Note: IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as House, Christopher L. and Emre Ozdenoren. “Durable Goods and Conformity.” RAND Journal of Economics 39, 2 (Summer 2008): 452-468.

Downloads: (external link)
http://www.nber.org/papers/w12028.pdf (application/pdf)

Related works:
Journal Article: Durable goods and conformity (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:12028

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12028

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2024-03-31
Handle: RePEc:nbr:nberwo:12028