The rise of niche consumption

Here is a new and neat paper which, to the extent it is true, would appear to address several significant puzzles at once.  From Brent Neiman and Joseph S. Vavra:

We show that over the last 15 years, the typical household has increasingly concentrated its spending on a few preferred products. However, this is not driven by “superstar” products capturing larger market shares. Instead, households increasingly focus spending on different products from each other. As a result, aggregate spending concentration has in fact decreased over this same period. We use a novel heterogeneous agent model to conclude that increasing product variety is a key driver of these divergent trends. When more products are available, households can select a subset better matched to their particular tastes, and this generates welfare gains not reflected in government statistics. Our model features heterogeneous markups because producers of popular products care more about maximizing profits from existing customers, while producers of less popular niche products care more about expanding their customer base. Surprisingly, however,our model can match the observed trends in household and aggregate concentration without any resulting change in aggregate market power.

This is related to what I called “matching” in The Complacent Class.

Comments

Wow, TC anticipated something. Pretty good. Kind of like my prediction about patents becoming more important in the future... you read it here first.

People buy smaller off-brands instead of big brands. This is what passes for insight these days? If so, I'd rather major in intersectionality studies than economics. Both equally fake, but better gender ratios there.

I take them to mean one person spends a thousand on a table saw, another person spends a thousand on golf clubs.

Wouldn't one expect aggregate spending concentration to decline during a period of rising inequality as consumers with very different levels of wealth/income consume very different products. Maybe I am seeing the image of Jesus in my mashed potatoes. In any case, consumers at the lower end concentrate their consumption on the relatively cheap (and disposable) goods sold at Walmart, loading up landfills in the process (the volume of discarded Walmart goods has become an enormous problem), while consumers at the other end concentrate their consumption on the relatively expensive goods only they can afford, yachts and mansions for example. My niece and her husband reside in a fast-growing low country city. Friends, a young married couple, are a two-Tesla family, the expensive model no less. "Frontier" has a very different meaning today than it did in the past.

These trends are still there even if you look just at rich households, or just within a single city or within a particular store. So it doesn’t seem like income inequality is the primary driver

I'm getting to an age where I remember a book I've read, but not the title.

But anyway, I read one that made the case that everyone buys "luxury" these days, but luxury fitting their budget. One person's luxury is a Starbucks in the morning, another person's luxury is a set of Callaway golf clubs.

(Whatever the book's title, I remember it was big on Callaway, and the volumes of expensive wine sold at CostCo.)

I guess it wasn't hard to find after all, just google "book luxury callaway golf clubs."

Trading Up by Michael J. Silverstein.

I noticed in the 80's that whenever my friends took up a hobby/sport, it cost about a thousand dollars. A decent racing bike, a scuba setup, even a good set of climbing ropes. It made sense to me as "well, people serious about something are ready to spend about a thousand, and so the market will provide."

It wouldn't surprise me that this continues (cost inflated of course), and I see it as tying into Alex's cost disease breakdown. If we get richer as a society, racing bikes will get more expensive. Carbon fiber will be "found" to provide benefits, etc. That's just the way it works.

It applies to celebrity, too. To me, people such as Tyler Cowan, Russ Roberts, Michael Malice, Charles CW Cooke, and Thaddeus Russell are celebrities. I'm confident that none of my neighbors or coworkers know who these people are. Outside of the price of my phone and internet connection, I spend $0 for the entertainment they deliver.

Couldn't agree more. Recently, I was sitting next to some dude at ORD when suddenly a flock of Filipinos came over and manically started to wave at him and hug him. Nearly as quickly as this happened...it was a bit alarming at first...the Filipinos dispersed. The scene happened again, with a bunch of Filipinos about 20 minutes later. After the second occurrence, I had to ask the guy what made him so popular amongst the islanders, given he didn't look Filipino. He simply stated, 'they love me over there.' Mystery unsolved.

A Ray Lopez sighting and you didn't ask for his autograph?

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