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  • 2022
  • Working Paper

Consumer Demand with Social Influences: Evidence from an E-Commerce Platform

By: El Hadi Caoui, Chiara Farronato, John J. Horton and Robert Schultz
  • Format:Print
  • | Language:English
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Abstract

For some kinds of goods, rarity itself is valued. "Fashionable'" goods are demanded in part because they are unique. In this paper, we explore the economics of rare goods using auctions of limited-edition shoes held by an e-commerce platform. We model endogenous entry and bidding in multi-unit auctions and construct demand curves from realized bids. We find that doubling inventory reduces willingness to pay by 7-15%. From the producer perspective, ignoring the value of rarity leads to substantial overproduction: auctioned quantities are 82% above the profit-maximizing level. From the consumer perspective however, the negative spillovers of restricting quantity more than offset the benefits of rarer goods.

Keywords

Rare Goods; Scarcity; E-commerce; Consumer Behavior; Auctions

Citation

Caoui, El Hadi, Chiara Farronato, John J. Horton, and Robert Schultz. "Consumer Demand with Social Influences: Evidence from an E-Commerce Platform." NBER Working Paper Series, No. 30351, August 2022.
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About The Author

Chiara Farronato

Technology and Operations Management
→More Publications

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More from the Authors
  • Self-Preferencing at Amazon: Evidence from Search Rankings By: Chiara Farronato, Andrey Fradkin and Alexander MacKay
  • The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb and the Accommodation Industry By: Chiara Farronato and Andrey Fradkin
  • Telepass: From Tolling to Mobility Platform By: Chiara Farronato
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