A model of demand with interactions among consumers

The aim of this paper is to study emergent patterns of demand when there are social interactions between different consumers. Specifically, our concern is with the case in which consumers' preferences are influenced 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 second is one or several contrast group(s), with which the individual seeks actively not to interact, and from whom the individual wishes to distinguish himself/herself. The third is an aspirational group, with whom the individual does not interact on a regular basis, but wishes that he/she did, and with whom the individual would like to share consumption activities, but cannot. In this relatively simple model, these groups influence the individual's behaviour. The paper derives steady state and dynamic properties of the distribution of consumption over users. The degree to which consumption is restricted to a small group of similar agents is determined by the strength of the contrast and aspiration 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 other consumers. The paper discusses the potential application of this modeling framework in a large number of consumption settings.