Dynamics of Consumer Demand for New Durable GoodsGautam Gowrisankaran, Marc Rysman
NBER Working Paper No. 14737 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. This paper is available as PDF (493 K) or via email.
This paper was revised on December 19, 2012 |

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