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Faculty of Economics

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Baumann, L.

Demand Cycles and Heterogeneous Conformity Preferences

CWPE1922

Abstract: The paper analyzes the dynamics of demand for three options when agents differ in their preferences for conformity. Each agent seeks to imitate others who are more individualistic and to distinguish herself from others who are more conformist, relative to herself. In each period, every agent chooses her utility-maximizing option given each agent's demand in the previous period. It is shown that for a large class of initial demand distributions, demand dynamics resemble fashion cycles: Total demand for each option over time is wave-like, and, when positively demanded, an option trickles through the entire population, from individualistic towards conformist agents.

Keywords: fashion cycle, demand cycle, conformity, individuality, dynamics, distribution of demand

JEL Codes: C73 D11 D91 E21 E32 E71 Z13

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PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1922.pdf

Open Access Link: https://doi.org/10.17863/CAM.38657