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Inertia, Interaction and Clustering in Demand

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  • Babutsidze, Zakaria

    (UNU-MERIT)

  • Cowan, Robin

    (UNU-MERIT, Maastricht University, and BETA - Universite Louis Pasteur)

Abstract

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.

Suggested Citation

  • Babutsidze, Zakaria & Cowan, Robin, 2009. "Inertia, Interaction and Clustering in Demand," MERIT Working Papers 2009-045, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2009045
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    File URL: https://unu-merit.nl/publications/wppdf/2009/wp2009-045.pdf
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    References listed on IDEAS

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    Cited by:

    1. Zakaria Babutsidze, 2012. "Consumer Learning through Interaction: Effects on Aggregate Outcomes," Chapters, in: Guido Buenstorf (ed.), Evolution, Organization and Economic Behavior, chapter 4, Edward Elgar Publishing.

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    More about this item

    Keywords

    Clustering; Interaction; Habits; Consumer choice;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools

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