Working Paper #2009-045
Inertia, Interaction and Clustering in Demand
We present a discrete choice model of consumption that incorporates two
empirically validated aspects of consumer behaviour: inertia in
consumption and interaction among consumers. We specify the interaction
structure as a regular lattice with consumers interacting only with
immediate neighbours. We investigate the equilibrium behaviour of the
resulting system and show analytically that for a large range of initial
conditions clustering in economic behaviour emerges and persists
indefinitely. Short-run behaviour of the model is investigated
numerically. This exercise indicates that equilibrium properties of the
system can predict a short-run behaviour of the model quite accurately.
- Keywords
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- Clustering
- Interaction
- Habits
- Consumer choice
- JEL codes
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- D11
- D83
- C65
Cite this as
APA 7th ed.Babutsidze, Z., & Cowan, R. (2009). Inertia, Interaction and Clustering in Demand (UNU-MERIT Working Paper No. 2009-045). UNU-MERIT. https://unu-merit.nl/publications/working-papers/abstract/?id=3830