Understanding the relevance of economic inequality for individuals’ and households’ consumption decisions

• Applicants: Professor Dr. Martin Biewen; Professor Dr. Dominik Papies
• Subject Area: Management and Marketing
• Term: since 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 513113952

Economic inequality has received considerable academic attention in recent years. Several empirical analyses – often at the aggregate level – have studied different consequences of economic inequality. Little is known, however, about how economic inequality affects the purchase behavior of individual households. Prior research from adjacent fields (e.g., psychology) suggests that consumers care about their position and status relative to others, and that they use consumption to display their status to their social environment. Given that consumers are likely to primarily engage in upward comparisons, this suggests that changes in economic inequality may lead to changes in consumption choices, in particular for products whose consumption is visible to others, and for households that are at lower parts of the income or wealth distribution. These relationships, however, have not been empirically studied. We seek to fill with void in this project by combining two separate strands of research, i.e., research on consumer decisions for highly differentiated goods, and research on economic inequality. To this end, we plan to utilize several different data sources. Using US tax data, we will construct measures for economic inequality at the zip-code level, and will merge these with three different data sources that each capture different aspects of consumers’ purchase behavior. In work package 1 (WP1) we will study the proposed relationships at the brand/product – week – store level using data that capture the majority of all US grocery stores across more than 10 years. In work package 2 (WP2), the analysis will rely on household level panel data, again from the US. Both WP1 and WP2 will focus on consumer expenditures for fast-moving consumer goods. Work package 3 (WP3), in contrast, will consider consumer investments into durable products, relying on data from the US car market. With this research, we seek to contribute to our understanding of the societal consequences of inequality, which are known to be of high relevance for societal cohesion and political stability. In addition, we expect that this research will deepen our understanding of how consumers react to macro-economic changes and our understanding of status consumption as a theoretical mechanism. Lastly, it will allow predictions of how consumers may behave when changes in economic inequality occur, which can be relevant both for firms as well as policy makers and consumer advocacy groups.

• DFG Programme: Research Grants