Computers and Packaged Software: Necessary or Luxury Goods? Longitudinal Empirical Analysis and Its Implications

Min Lu
Steven M. Thompson, University of Richmond
Yanbin Tu


This study investigated the income elasticity of demand for computers and packaged software in the United States from 1992 to 2003. Using cointegration analysis with quarterly time series data, we found that computers and packaged software are necessary goods to private firms, luxury goods to households, and inferior goods to government agencies. By using flexible least squares, we showed that these income elasticities generally are stable over the time horizon. We found that while private firms represent the bulk of computer and packaged software sales, growth in household expenditure is the precursor to growth in the overall market. The extended analysis on IT and communication products and services also suggests broader IT products are luxury products to households. The managerial implications of our findings are discussed.