Response to “Fashion Cycles in Economics”
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The paper argues that fashion demand is cyclical because of the signaling role of fashion. Agents use fashion goods to signal their type—e.g., their wealth—and to screen the type of other agents. A fashion good is an effective signal as long as its price is high and only high types have an incentive to buy it. Over time producers will lower the price of the fashion good to sell the good to lower types. This leads to a degradation of the signaling value of the fashion. Eventually, there is room for a “new fashion”, i.e., another fashion item sold at a high price that separates high from low types
This article is a response to Fashion Cycles in Economics by Philip R. P. Coelho, Daniel B. Klein, and James E. McClure (EJW, December 2004).
Response to this article by Philip R. P. Coelho, Daniel B. Klein, and James E. McClure: Rejoinder to Pesendorfer (EJW, April 2005).