Dynamics of Consumer Demand for New Durable Goods

48 Pages Posted: 21 Feb 2009 Last revised: 9 Oct 2022

See all articles by Gautam Gowrisankaran

Gautam Gowrisankaran

Columbia University; HEC Montreal; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Marc Rysman

Boston University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 2009

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 one-year elasticity in response to a transitory industry-wide price shock is about 25% less than the one-month elasticity. Standard cost-of-living indices overstate welfare gain in later periods due to a changing composition of buyers.

Suggested Citation

Gowrisankaran, Gautam and Rysman, Marc, Dynamics of Consumer Demand for New Durable Goods (February 2009). NBER Working Paper No. w14737, Available at SSRN: https://ssrn.com/abstract=1347220

Gautam Gowrisankaran (Contact Author)

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Marc Rysman

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