Dynamics of Consumer Demand for New Durable Goods
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NBER Working Paper No. 14737
Issued in February 2009
NBER Program(s): IO PR
Most new consumer durable goods experience rapid declines in prices and improvements in quality, suggesting the importance of modeling dynamics. This paper estimates a dynamic model of consumer preferences for new durable goods with persistent 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 standard COLIs overstate welfare gain in later periods due to a changing composition of buyers. The one-year industry elasticity in response to a transitory industry-wide price shock is about 25% less than the one-month elasticity.
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This paper was revised on December 14, 2011 Acknowledgments
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