Discussion Paper Details

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Title: Heterogenous Peer Effects: How Community Connectivity Affects Car Purchases

Author(s): Joshua Shemesh, Fernando Zapatero and Yves Zenou

Publication Date: May 2022

Keyword(s): Conspicuous consumption, neighbor effects, Population density and tight-knit community

Programme Area(s): Industrial Organization

Abstract: We show that the intensity of "keeping up with the Joneses" behavior is largely determined by the extent to which a community is socially connected. Using a unique dataset on car purchases in Southern California, we find that social influence intensifies in suburban communities in which neighbors are likely to know each other well. The effect of connected communities is particularly apparent in higher price segments and cannot be fully explained by word-of-mouth as it spills across car makes. Our findings suggest that positional externalities from the consumption of visible status goods are higher in closer-knitted social networks.

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Bibliographic Reference

Shemesh, J, Zapatero, F and Zenou, Y. 2022. 'Heterogenous Peer Effects: How Community Connectivity Affects Car Purchases'. London, Centre for Economic Policy Research.