Demand Cycles and Heterogeneous Conformity Preferences

31 Pages Posted: 30 Sep 2017 Last revised: 2 Mar 2021

See all articles by Leonie Baumann

Leonie Baumann

McGill University - Department of Economics

Wojciech Olszewski

Northwestern University - Department of Economics

Date Written: March 1, 2021

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.

Keywords: fashion cycle, demand cycle, preference for conformity

JEL Classification: D11, D91, E21, E32, E71, Z13

Suggested Citation

Baumann, Leonie and Olszewski, Wojciech, Demand Cycles and Heterogeneous Conformity Preferences (March 1, 2021). Available at SSRN: https://ssrn.com/abstract=3043863 or http://dx.doi.org/10.2139/ssrn.3043863

Leonie Baumann (Contact Author)

McGill University - Department of Economics ( email )

855 Sherbrooke Street West
Montreal, QC H3A 2T7
CANADA

Wojciech Olszewski

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

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