A MODEL OF DEMAND WITH INTERACTIONS AMONG CONSUMERS

The aim of this paper is to study emergent patterns of demand when the re are social interactions between different consumers. Specifically, our concern is with the case in which consumers' preferences are influ enced by the consumption behaviour of others. The analysis recognises three reference groups. The first is a peer group of similar consumers , with whom the individual interacts on a regular basis, and with whom the individual desires to share some consumption activities. The seco nd is one or several contrast group(s), with which the individual seek s actively not to interact, and from whom the individual wishes to dis tinguish himself/herself. The third is an aspirational group, with who m the individual does not interact on a regular basis, but wishes that he/she did, and with whom the individual would like to share consumpt ion activities, but cannot, In this relatively simple model, these gro ups influence the individual's behaviour, The paper derives steady sta te and dynamic properties of the distribution of consumption over user s. The degree to which consumption is restricted to a small group of s imilar agents is determined by the strength of the contrast and aspira tion effects. These effects also drive the distribution away from the natural distribution, i.e., the one that would prevail were consumers to consider only the properties of the good, and not the actions of ot her consumers. The paper discusses the potential application of this m odeling framework in a large number of consumption settings, (C) 1997 Elsevier Science B.V.