ADDICTION ASYMMETRY AND THE DEMAND FOR COFFEE
| DOI | http://doi.org/10.1111/j.1467-9485.1982.tb00438.x |
| Author | Trevor Young |
| Published date | 01 February 1982 |
| Date | 01 February 1982 |
Scottish
Journal
of
Poli~ical
Econumy,
Vol.
29,
No.
1,
February
1982
Q
1982
Scottish
Economic
Society 0036
9292/82/00060000 $02.00
ADDICTION ASYMMETRY AND
THE DEMAND FOR COFFEE
TREVOR
YOUNG
University
of
Manchester
I
In a recent article in this Journal, Scitovsky
(1978)
analysed a number of
instances in which asymmetry of response might be a feature of economic
behaviour. This note presents an approach towards the modelling of one form
of asymmetry-“addiction asymmetry”-and presents the results of applying
the technique to the demand for coffee in Great Britain. For comparison
purposes, the continuous habit formation model of Houthakker and Taylor is
also estimated.
Scitovsky
(1976, 1978)
argued that addiction asymmetry “stems from
people’s tendency to acquire habits to consume much more easily than to
abandon them”. Moreover, habit formation is not only a feature of the
consumption of products such as drugs, for which a physiological and
psychological dependency may exist, but rather “such asymmetry is pretty
nearly universal”.
A
consumer, having experienced a higher standard
of
living,
whether created by a low product price or by high income, may become
attached to any aspect of that level
of
consumption. Indeed the importance
of
habit formation has been recognised for some time. Notably, Marshall
(1927)
suggested “. . . habits which have once grown up around the use of a
commodity while its price is low are not quickly abandoned when its price rises
again”. This type of consumer response to price changes is illustrated by the
kinked demand curve in Figure
1.
The consumer, at point
a,
would move down
the arm
ab
if the price of the product falls but up the more inelastic segment
ac
if the price rises.
Given addiction asymmetry on the demand side of the market, there is then
the question
of
the appropriate response of producers.
If
the industry is
a
competitive one, the individual producers will face a perfectly elastic demand
schedule at a price determined by the intersection of the industry supply curve
and the kinked demand curve. In this case asymmetry of demand presents
no
barrier to the determination and stability of equilibrium for the firm. On the
other hand, if, in an imperfectly competitive market, each producer faces a
kinked demand curve, the determination of equilibrium is more problematic.
As
Figure
2
illustrates, the firm’s marginal revenue curve will have a
discontinuity and, in general, the marginal cost would intersect it at two
points, giving two local equilibria.
A
formal analysis
of
the dynamics
of
Date
of
receipt
of
final manuscript
:
25
May
1981.
89
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