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The Rise and Rise of Cable TV: Demand elasticity of cable television during the Great Recession
Unformatted Document Text:  CABLE SUBSCRPITIONS Literature Review According to the Permanent Income Hypothesis (PIH), developed by economist Milton Friedman, consumers base spending decisions on what they think their income will be over a broad period of time (Friedman, 1957). Momentary dips or lapses in income will not affect their patterns of consumption, and these patterns will remain the same as before the change in income (Wang 2006). Since Freidman developed the PIH much research has supported it, especially when applied to consumption of service goods as opposed to durable goods (Thurston, 1977). Other research has suggested that the PIH is specifically an effective model for describing regional patterns affected by region-specific economic issues ( DeJuan, Seater & Wirjanto, 2004). On an individual consumer level, research has shown that borrowing levels are generally consistent with the PIH (Park & Rodrigues, 2000), and that consumers will go into debt if necessary to maintain certain aspects of their lifestyle that existed prior to a shift in income. However, while some might point to a correlation between this type of consumer over- confidence and the negative state of the economy during the Great Recession, generally consumer spending does not exactly mirror economic ebbs and flows in this way (McIntyre, 2007) . As a separate indicator, measurements of consumer confidence do not yield as much significant predictive data as using the PIH, thus supporting the predictive power of the PIH with respect to consumers’ spending habits. 1 Some scholars have questioned the potential of the PIH to be a predictive indicator of broad consumption habits across the United States – a particular study analyzed data from different generations (Gupta & Ziramba, 2011). However, in the case of that research, the consumer trends compared were from different, incomparable economical eras – i.e.: using labor 1 However, McIntyre does argue that taking consumer confidence into account when looking at PIH might strengthen its validity (2007). 4

Authors: Danelo, Matthew.
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CABLE SUBSCRPITIONS
Literature Review
According to the Permanent Income Hypothesis (PIH), developed by economist Milton 
Friedman, consumers base spending decisions on what they think their income will be over a 
broad period of time (Friedman, 1957). Momentary dips or lapses in income will not affect their 
patterns of consumption, and these patterns will remain the same as before the change in income 
(Wang 2006). Since Freidman developed the PIH much research has supported it, especially 
when applied to consumption of service goods as opposed to durable goods (Thurston, 1977). 
Other research has suggested that the PIH is specifically an effective model for describing 
regional patterns affected by region-specific economic issues (
DeJuan, Seater & Wirjanto, 2004).
On an individual consumer level, research has shown that borrowing levels are generally 
consistent with the PIH (Park & Rodrigues, 2000), and that consumers will go into debt if 
necessary to maintain certain aspects of their lifestyle that existed prior to a shift in income. 
However, while some might point to a correlation between this type of consumer over-
confidence and the negative state of the economy during the Great Recession, generally 
consumer spending does not exactly mirror economic ebbs and flows in this way (McIntyre, 
2007)
. As a separate indicator, measurements of consumer confidence do not yield as 
much significant predictive data as using the PIH, thus supporting 
the predictive power 
of the PIH with respect to consumers’ spending habits.
Some scholars have questioned the potential of the PIH to be a predictive indicator of 
broad consumption habits across the United States – a particular study analyzed data from 
different generations (Gupta & Ziramba, 2011). However, in the case of that research, the 
consumer trends compared were from different, incomparable economical eras – i.e.: using labor 
1
 However, McIntyre does argue that taking 
consumer confidence into account when 
looking at PIH might strengthen its validity (2007).
4


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