Luxury or Necessary Goods?: Analysis of Household Demand for Communication and IT Products in OECD Countries

Luxury or Necessary Goods?: Analysis of Household Demand for Communication and IT Products in OECD Countries

Yanbin Tu (Robert Morris University, Pittsburgh, USA)
Copyright: © 2020 |Pages: 14
DOI: 10.4018/IJBAN.2020070103
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This paper analyzes the income elasticity of household demand for communication and IT products in 23 Organization for Economic Co-operation and Development (OECD) countries during the period from 2008 to 2015. By using panel data analysis, the authors find that both communication and IT products are necessary to the households in the OECD countries as a whole. By using OLS and GLS regression for each country, they compare the change of each one's income elasticity over two periods during 1989 to 2015. The authors find that communication and IT products were considered luxury goods by the households in these countries from 1989 to 2001. However, from 2008 to 2015 such products were considered necessary, luxury, or inferior goods separately by the households in various OECD countries. The trend is that the income elasticity is decreasing, and households in some OECD countries start to take such products as necessary goods. Both panel analysis and regression results suggest that most of households take communication and IT products as necessary.
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2. Literature Review

How can one product be perceived by users as luxury or necessary? The concept of luxury is a multifaceted one and can be understood with tangible/intangible and personal/social distinctions (Brun and Castelli 2013). Phau and Prendergast (2000) point out that the Rarity Principle plays a major role in maintaining prestige which luxury brands can deliver. The individual, social, financial, and functional dimensions significantly impact the consumer’s luxury value perception (Wiedmann, Hennigs and Siebels 2007). Park, Rabolt and Jeon (2008) find that purchasing frequency, conformity, age, consumer ethnocentrism, social recognition, and pocket money were significantly related to the purchasing of foreign luxury fashion brands. Reference group also influences the purchases of luxuries and necessaries (Bearden and Etzel 1982). Gostkowski (2018) use QUAIDS to measure elasticity of consumer demand which can be used to understand the six groups of household goods in Poland.

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