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

26 Pages Posted: 15 Aug 2022 Last revised: 20 Aug 2022

See all articles by El Hadi Caoui

El Hadi Caoui

University of Toronto - Rotman School of Management

Chiara Farronato

Harvard University; National Bureau of Economic Research (NBER)

John J. Horton

New York University (NYU) - Department of Information, Operations, and Management Sciences

Robert Schultz

University of Michigan - Ann Arbor

Date Written: August 2022

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.

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Suggested Citation

Caoui, El Hadi and Farronato, Chiara and Horton, John J. and Schultz, Robert, Consumer Demand with Social Influences: Evidence from an E-Commerce Platform (August 2022). NBER Working Paper No. w30351, Available at SSRN: https://ssrn.com/abstract=4190173

El Hadi Caoui (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Chiara Farronato

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

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John J. Horton

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

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6175952437 (Phone)

HOME PAGE: http://john-joseph-horton.com

Robert Schultz

University of Michigan - Ann Arbor ( email )

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Ann Arbor, MI 48109
United States

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