TY  - JOUR
AU  - House,Christopher L.
AU  - Ozdenoren,Emre
TI  - Durable Goods and Conformity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12028
PY  - 2006
Y2  - February 2006
UR  - http://www.nber.org/papers/w12028
L1  - http://www.nber.org/papers/w12028.pdf
N1  - Author contact info:
Christopher House
University of Michigan
Department of Economics
238 Lorch Hall
Ann Arbor, MI  48109-1220
Tel: 734/764-2364
Fax: 734/764-2769
E-Mail: chouse@umich.edu

Emre Ozdenoren
Department of Economics
London Business School 
Regent's Park
London NW
E-Mail: eozdenoren@london.edu
AB  - 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.
ER  -