Threshold models of interpersonal effects in consumer demand

Abstract

Whether one buys may be determined in part by how many others have. When the correlation is positive we refer to 'bandwagon' effects, and when negative, 'reverse bandwagons'. We construct demand schedules in the presence of such effects and, with simple assumptions about supply, investigate the existence of and approach to equilibrium. Stable price-quantity equilibria exist, but for many plausible parameter values, equilibria are asymptotically unstable, and system trajectories consist of cycles that can move, with slight parameter changes, via successive bifurcations into what has been called 'chaotic' dynamics, essentially indistinguishable from random noise. These conditions occur despite assumptions of [erfect information, profit maximizing firms and utility maximizing individuals.