Avi Goldfarb, University of Toronto

The Effect of Social Interaction on Economic Transactions: An Embarrassment of Niches?

November 8, 2012 | 3:00pm - 4:30pm | Cotting Conference Room | Open to public

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Strategy Unit

Technology & Operations Management Unit

Digital

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We show that social interaction reduces the diversity of products purchased by consumers in two distinct retail settings. First, we consider a field experiment conducted by Sweden's monopoly alcohol retailer and find that moving purchases from behind the counter to self-service differentially increases the sales of difficult-to-pronounce products. Second, we use individual-level panel data from a pizza delivery restaurant to show that online orders are more obscure, complex, and calorific; structural demand estimation suggests this led to a 5.4% increase in consumer surplus for pizza customers and a 3.5% increase in producer surplus. Combined, we argue that our results suggest that frictions related to social inhibitions can substantially affect market outcomes, with much of this effect likely related to consumers' fear of embarrassment. Our results provide a new explanation for the prevalence of “long tail” sales distributions in online settings, and identify a new source of consumer benefit from use of the internet.​