Tuesday, May 26, 2015
Martin Paredes (Universidad de Piura) has written on Brand Loyalty, Volume of Trade and Leapfrogging: Consumer Behavior for Durable Experience Goods.
ABSTRACT: We present a dynamic model that addresses how the interaction between durability and experience consumers’ replacement decisions. Despite obsolescence, consumers keep used goods because of quality uncertainty of new goods. Contrary to adverse selection articles, incomplete trade in secondary markets can be efficient provided experience involves idiosyncratic tastes. As some consumers decide which vintage to buy depending on past experiences, brand loyalty can be higher for new goods. When consumers’ expected experience differs across brands, the best brand exhibits higher loyalty, larger sales, longer ownership spells, and higher resale prices, results consistent with evidence from the U.S. automobile industry.