Evolutionary Model of a Anonymous Consumer Durable Market

TL;DR

This paper introduces an evolutionary model for consumer durable markets, combining diffusion processes and evolutionary dynamics to explain sales, market structure, and price distributions, aligning well with empirical data.

Contribution

It develops a novel evolutionary framework integrating diffusion and selection mechanisms to model durable goods markets and derive market and product characteristics.

Findings

Sales follow Bass diffusion initially, then evolve via selection mechanisms.

Product size distribution is lognormal, growth rates are Laplace-distributed.

Price deviations exhibit fat tails consistent with Laplace distribution.

Abstract

An analytic model is presented that considers the evolution of a market of durable goods. The model suggests that after introduction goods spread always according to a Bass diffusion. However, this phase will be followed by a diffusion process for durable consumer goods governed by a variation-selection-reproduction mechanism and the growth dynamics can be described by a replicator equation. Describing the aggregate sales as the sum of first, multiple and replacement purchase the product life cycle can be derived. Replacement purchase causes periodic variations of the sales determined by the finite lifetime of the good (Juglar cycles). The model suggests that both, Bass- and Gompertz diffusion may contribute to the product life cycle of a consumer durable. The theory contains the standard equilibrium view of a market as a special case. It depends on the time scale, whether an equilibrium or evolutionary description is more appropriate. The evolutionary framework is used to derive also the size, growth rate and price distribution of manufacturing business units. It predicts that the size distribution of the business units (products) is lognormal, while the growth rates exhibit a Laplace distribution. Large price deviations from the mean price are also governed by a Laplace distribution (fat tails). These results are in agreement with empirical findings. The explicit comparison of the time evolution of consumer durables with empirical investigations confirms the close relationship between price decline and Gompertz diffusion, while the product life cycle can be described qualitatively for a long time period.