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Weathering tight economic times: the sales evolution of consumer durables over the business cycle

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Despite its obvious importance, not much is known on how business-cycle fluctuations affect companies and/or industries. Often, one only has aggregate information on the state of the national economy, even though cyclical contractions and expansions need not have an equal impact on every industry, nor on all firms in that industry. Using recent time-series developments, the authors introduce various measures to quantify the extent and nature of business-cycle fluctuations in sales. Specifically, they discuss the notion of cyclical volatility, and consider two types of cyclical asymmetry, deepness and steepness asymmetry, to examine how consumers adjust their purchasing behavior across different phases of the business cycle. They apply these concepts to a broad set (24) of consumer durables, for which they analyze the cyclical sensitivity in their sales evolution. In so doing, the authors (i) derive a novel set of empirical generalizations, and (ii) test different marketing theory-based hypotheses on the underlying drivers of cyclical sensitivity. Consumer durables are found to be more than two times as sensitive to business-cycle fluctuations than the general economic activity. This observation calls for an explicit consideration of cyclical variation in durable performance. Moreover, no evidence is found for deepness asymmetry, but the combined evidence across all durables suggest that steepness asymmetry is present, as durables' sales falls much quicker during recessions than it recovers during economic expansions. Finally, key variables related to industry pricing activities, the durable's expensiveness, and the stage in the product life cycle tend to moderate the extent of cyclical volatility.

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