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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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  • Is AI the Right Tool to Solve That Problem? By: Paolo Cervini, Chiara Farronato, Pushmeet Kohli and Marshall W Van Alstyne
  • Webmunk: A New Tool for Studying Online Behavior and Digital Platforms By: Chiara Farronato, Andrey Fradkin and Chris Karr
  • Consumer Protection in an Online World: An Analysis of Occupational Licensing By: Chiara Farronato, Andrey Fradkin, Bradley Larsen and Erik Brynjolfsson
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