DP17306 Heterogenous Peer Effects: How Community Connectivity Affects Car Purchases

Author(s): Joshua Shemesh, Fernando Zapatero, Yves Zenou
Publication Date: May 2022
Keyword(s): Conspicuous consumption, neighbor effects, Population density, tight-knit community
JEL(s): A14, D12
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17306

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.