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Durable goods and conformity

Authors


  • The authors gratefully acknowledge the comments of Miles Kimball, Kai-Uwe Kuhn, Greg Lewis, Yusufcan Masatlioglu, Daisuke Nakajima, Steve Salant, Dan Silverman, Lones Smith, and Randy Wright. We also thank two anonymous referees and the editor for valuable comments and suggestions.

Abstract

A consumer's demand for a durable good is governed not only by his individual preferences but also by preferences of other market participants. This interdependence of preferences arises from the inevitable resale of durable goods. If most people prefer goods with certain features, original buyers conform and choose goods with these features even if they do not like them. Using a matching model, we show there is always conformity in equilibrium. The incentive to conform is strongest for long-lived durables and for people who trade frequently. If average preferences are sufficiently strong, there is always too little conformity in equilibrium.

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