The Sales Effect of Word of Mouth: A Model for Creative Goods and Estimates for Novels

WZB Markets and Politics Working Paper No. SP II 2006-16

36 Pages Posted: 11 Oct 2006  

Jonathan Beck

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

Date Written: September 2006

Abstract

Weekly sales of creative goods - like music records, movies or books - usually peak shortly after release and then decline quickly. In many cases, however, they follow a hump-shaped pattern where sales increase for some time. A popular explanation for this phenomenon is word of mouth among a population of heterogeneous buyers, but previous studies typically assume buyer homogeneity or neglect word of mouth altogether. In this paper, I study a model of new-product diffusion with heterogeneous buyers that allows for a quantification of the sales effect of word of mouth. The model includes Christmas sales as a special case. All parameters have an intuitive interpretation. Simulation results suggest that the parameters are estimable for data that are not too volatile and that cover a sufficiently large part of a title's life cycle. I estimate the model for four exemplary novels using scanner data on weekly sales.

Keywords: new-product diffusion, word of mouth, creative industries

JEL Classification: C22, L82, M3

Suggested Citation

Beck, Jonathan, The Sales Effect of Word of Mouth: A Model for Creative Goods and Estimates for Novels (September 2006). WZB Markets and Politics Working Paper No. SP II 2006-16. Available at SSRN: https://ssrn.com/abstract=931382 or http://dx.doi.org/10.2139/ssrn.931382

Jonathan Beck (Contact Author)

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, 80539
Germany

HOME PAGE: http://www.ice.bwl.uni-muenchen.de/personen/assoziierte/beck/index.html

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