Social Interactions in Demand

14 Pages Posted: 27 Aug 2008

See all articles by Andrew Grodner

Andrew Grodner

East Carolina University - Department of Economics

Thomas J. Kniesner

Claremont Graduate University - Department of Economic Sciences; Syracuse University - Department of Economics; IZA

Abstract

We examine theoretically demand in a two-good economy where the demand of one good is influenced by either a spillover effect in the form of an externality from other consumers' choices and or a conformity effect representing a need for making similar choices as others. A positive spillover effect increases the demand for the good with interactions, and a conformity effect makes the demand curve pivot around the average market demand to make demand less price sensitive. The collateral implication is that spillover in consumption increases the associated derived demand for labor and conformity in consumption makes the associated derived demand for labor less elastic. Finally, we also demonstrate how the presence of a good with social interactions affects the demand for the good without social interactions and the associated demand for the labor producing the non-interactions good.

Keywords: spillover, social interactions, consumer demand, conformity, labor demand

JEL Classification: D11

Suggested Citation

Grodner, Andrew and Kniesner, Thomas J., Social Interactions in Demand. IZA Discussion Paper No. 3656. Available at SSRN: https://ssrn.com/abstract=1251024 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Andrew Grodner (Contact Author)

East Carolina University - Department of Economics ( email )

A423 Brewster Building
Greenville, NC 27858
United States
2523286742 (Phone)

Thomas J. Kniesner

Claremont Graduate University - Department of Economic Sciences ( email )

Claremont, CA 91711
United States

Syracuse University - Department of Economics ( email )

Syracuse, NY 13244-1020
United States

IZA

P.O. Box 7240
Bonn, D-53072
Germany

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