Dynamics of consumer demand for new durable goods

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67 Scopus citations

Abstract

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 1-year elasticity in response to a transitory industrywide price shock is about 25 percent less than the 1-month elasticity. Standard cost-of-living indices overstate welfare gain in later periods due to a changing com- position of buyers.

Original languageEnglish (US)
Pages (from-to)1173-1219
Number of pages47
JournalJournal of Political Economy
Volume120
Issue number6
DOIs
StatePublished - Dec 1 2012

ASJC Scopus subject areas

  • Economics and Econometrics

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