Demand cycles and heterogeneous conformity preferences

Leonie Baumann*, Wojciech Olszewski

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We explore the dynamics of demand for n designs of a good when agents have preferences for (anti-)conformity. Agents differ in their social status and each agent seeks to imitate those of higher status and to distinguish herself from those of lower status, relative to her own status. In each period, every agent chooses a design given each agent's demand in the previous period. We show that demand dynamics resemble fashion cycles: The demand for designs is repetitively bell-shaped over time, and, when positively demanded, a design trickles from high- to low-status individuals. At least for n=3, the demand dynamics converge to a unique limit cycle. We obtain a similar (though weaker) convergence result for n=4, and simulations suggest that the result holds for n=4 and 5.

Original languageEnglish (US)
Article number105252
JournalJournal of Economic Theory
Volume194
DOIs
StatePublished - Jun 2021

Keywords

  • Demand cycle
  • Fashion cycle
  • Preference for conformity

ASJC Scopus subject areas

  • Economics and Econometrics

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