Most adults have vivid memories of the cars of their childhoods — the wood-paneled station wagons (with backwards-facing rear seats, no less) or the boxy minivans in which they were driven to school or church. But how much do those memories affect people’s car-buying decisions in adulthood? That’s the question asked in a new paper (draft PDF; abstract) by Soren T. Anderson, Ryan Kellogg, Ashley Langer, and James M. Sallee:
We document a strong correlation in the brand of automobile chosen by parents and their adult children, using data from the Panel Study of Income Dynamics. This correlation could represent transmission of brand preferences across generations, or it could result from correlation in family characteristics that determine brand choice. We present a variety of empirical specifications that lend support to the former interpretation and to a mechanism that relies at least in part on state dependence. We then discuss implications of intergenerational brand preference transmission for automakers’ product-line strategies and for the strategic pricing of vehicles to different age groups.
The authors also conclude that these preferences likely explain why automakers carry wide ranges of products. “[I]t seems likely that giving consumers an opportunity to stay within a brand over the lifecycle, thereby allowing them to develop a brand preference, can substantially enhance the value of carrying a broadly differentiated vehicle fleet,” they write. ”It is intuitive to expect that brand preferences give producers an incentive to develop entry-level offerings that will “lead” consumers to their profitable upscale goods.”