Heterogenous Peer Effects: How Community Connectivity Affects Car Purchases

We show that the intensity of "keeping up with the Joneses" behavior is largely determined by the extent to which a community is socially connected. Using a unique dataset on car purchases in Southern California, we find that social influence intensifies in suburban communities in which neighbors are likely to know each other well. The effect of connected communities is particularly apparent in higher price segments and cannot be fully explained by word-of-mouth as it spills across car makes. Our findings suggest that positional externalities from the consumption of visible status goods are higher in closer-knitted social networks. Abstract We show that the intensity of “keeping up with the Joneses” behavior is largely determined by the extent to which a community is socially connected. Using a unique dataset on car purchases in Southern California, we find that social influence intensifies in suburban communities in which neighbors are likely to know each other well. The effect of connected communities is particularly apparent in higher price segments and cannot be fully explained by word-of-mouth as it spills across car makes. Our findings suggest that positional externalities from the consumption of visible status goods are higher in closer-knitted social networks. divided by the overall number of transactions of all makes in a BG during a calendar quarter in percentage terms (i.e., multiplied by 100). SameMake equals 1 if at least one car of the same make was purchased within the same block group within the previous quarter. DifferentMake equals 1 if at least one car of a different make was purchased within the same block group within the previous quarter. Quarter fixed-effects control for within-year seasonality, while census tract fixed-effects control for neighborhood characteristics. Block Groups (BG) and Tracts are delimited by the U.S. Census Bureau, and demographic information at the BG level is from the 2000 U.S. census. Family Income is scaled to 100,000. In Models 5–6 we examine non-luxury and luxury makes, respectively. Luxury makes are BMW, LEXUS, and MERCEDES-BENZ. In these subsamples, DifferentMake equals 1 if at least one car of a different make but of the same type (luxury/non-luxury) was purchased within the same block group within the previous quarter. equals 1 if at one car of the same purchased within a different BG in the same zip code during the previous DifferentMake equals 1 if at least one car of a different make was purchased within a different BG in the same zip code during the previous quarter. fixed-effects control for within-year seasonality. Zip codes are delimited by the U.S. Block Groups (BG) are delimited by the U.S. Census Bureau, and demographic information at the BG level is from the 2000 U.S. census. Density is defined per square meter as in the U.S. census. Family Income is scaled to 100,000. In Models 2–3 we examine non-luxury makes Luxury makes are In these subsamples, DifferentMake equals if at least one car of a different make but of the same type (luxury/non-luxury) within a different BG in the same zip code during the previous quarter.