TITLE

Some Anomalies Arising from Bandwagons that Impart Upward Sloping Segments to Market Demand

AUTHOR(S)
Gisser, Micha; McClure, James; �kten, Giray; Santoni, Gary
PUB. DATE
January 2009
SOURCE
Econ Journal Watch;Jan2009, Vol. 6 Issue 1, p21
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Harvey Leibenstein's (1950) seminal QJE article, "Bandwagon, Snob, and Veblen Effects in the Theory of the Consumers' Demand," defines the bandwagon effect as "the extent to which the demand for a commodity is increased due to the fact that others are also consuming the same commodity"(Leibenstein 1950, 189). A key aspect of his formulation is that scarcity precludes runaway bandwagon effects. Leibenstein posits a "diminishing marginal external consumption effect": [T]he income constraint is sufficient to establish that there must be a point at which increases in a consumer's demand must fail to respond to increases in demand by others. Since every consumer is subject to the income constraint, it must follow that the principle [of diminishing marginal external consumption effect] holds for all consumers (Leibenstein 1950, 193). Invoking this principle, Leibenstein hypothesizes demand curves for bandwagon goods are everywhere negatively sloped. Gary Becker's (1991) model ignores Leibenstein's scarcity constraint in favor of bandwagons that impart positive slopes--despite the fact that there is no empirical evidence that bandwagon effects have ever imparted a positive slope to market demand. Back in 1971, Becker wrote: "Perhaps the most fundamental finding in economics is the 'law' of the negatively sloped demand curve" (Becker 1971, 11)--and yet his 1991 article contradicts that most fundamental finding without ceremony. Amplifying the importance of this reversal, a large body of literature now cites Becker's bandwagon model uncritically without any mention of Leibenstein's scarcity-constrained hypothesis on bandwagon effects. This comment explores the theory underlying analytics of Becker's (1991) model. We show that straightforward parameterizations of the upward sloping demand he models are inconsistent with the requirement that quantities demanded be non-negative. We also show that, even if the problem of negative consumption could be finessed via more subtle parameterizations and/or specifications, the comparative static results implied by the upward-sloping segments of his hypothesized demand curve fail Milton Friedman's (1970, 28) maxim that a theory's assumptions ought not to cause it to produce unworldly implications.
ACCESSION #
48276419

 

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