Consumers’ Decaying Generosity Can Sustain a Profit-Oriented Firm Dependent on Social Preferences

Abstract

Can social preferences sustain a for-profit company? We analyze panel data tracking payments of 57,196 customers for five years from an online retail firm whose profitability relies on consumers’ altruism. Most customers are generous and remain so over time. However, their generosity slowly declines as they gain purchase experience over time but does not reach zero. Furthermore, stingier, yet loyal consumers contribute cumulatively more to the firm’s long-term profitability than more generous consumers. These results suggest that altruism can not only sustain a firm in market contexts, but it can also be exploited to generate profits for the firm.

Keywords: Behavioral Pricing, Social Preferences, Consumer Altruism, Long-term Social Preferences

JEL Classification: D12, D64, D91