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

Jung, Minah; Liu, Xiao; Nelson, Leif D.

doi:10.2139/ssrn.3241497

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

48 Pages Posted: 13 Sep 2018 Last revised: 18 Oct 2018

See all articles by Minah Jung

Minah Jung

New York University (NYU) - Department of Marketing

Xiao Liu

New York University (NYU) - Leonard N. Stern School of Business

Leif D. Nelson

University of California, Berkeley - Haas School of Business

Date Written: August 30, 2018

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

Suggested Citation: Suggested Citation

Jung, Minah and Liu, Xiao and Nelson, Leif D., Consumers’ Decaying Generosity Can Sustain a Profit-Oriented Firm Dependent on Social Preferences (August 30, 2018). Available at SSRN: https://ssrn.com/abstract=3241497 or http://dx.doi.org/10.2139/ssrn.3241497