Selling It

Kevin Lewis

August 06, 2022

Mementos and the endowment effect
Charlene Chu & Suzanne Shu
Journal of Behavioral Decision Making, forthcoming

This research provides evidence for a new moderator of the endowment effect: having a memento of the endowed object. Three studies adapting classic endowment effect paradigms and using a variety of endowment objects and mementos demonstrate that having a memento of an endowment increases willingness to trade the endowment and decreases selling prices for the endowment. We provide evidence that mementos attenuate the endowment effect regardless of whether the memento is a separate small gain when facing the loss of the endowment or a small part of the original endowment that is kept. Examining mementos in context of the endowment effect not only provides insight into the psychology underlying the reluctance to part with one's endowment but also other consumer disposition behaviors. 

Pricing Power in Advertising Markets: Theory and Evidence
Matthew Gentzkow et al.
NBER Working Paper, July 2022

Existing theories of media competition imply that advertisers will pay a lower price in equilibrium to reach consumers who multi-home across competing outlets. We generalize and extend this theoretical result and test it using data from television and social media advertising. We find that television outlets whose viewers watch more television charge a lower price per impression to advertisers. This finding helps rationalize well-known stylized facts such as a premium for younger and more male audiences on television. Also consistent with the theory, we show that social media advertising markets feature a premium for older audiences. A quantitative version of our model whose only free parameter is a scale normalization can explain 35 percent of the variation in price per impression across owners of television networks, and aligns with recent trends in television advertising revenue. We use the model to quantify the impact of mergers, the effect of competition on incentives to produce content, and the effect of Netflix ad carriage on prices for linear television advertising. 

Beyond content: Exploring the effects of narrative structure on entertainment experience
Jialing Huang & Matthew Grizzard
Journal of Media Psychology, forthcoming

Narratologists have argued that playing with narrative structure is a means to bring about esthetic or psychological effects among audiences. The present study tested empirically whether a film narrative told chronologically or achronologically influences audiences’ psychological perceptions and appreciation. It was found that achronological narratives are more enjoyed and appreciated than their chronological counterparts. Furthermore, achronological versions of a narrative were perceived to be more suspenseful and transporting than a chronological version. Interestingly, narrative structure also affected perceived likability and importance of characters. This study thus contributes to the social scientific literature on narratives by showing that the structure of a narrative, apart from its content, is an important determinant of entertainment experiences.

Let the User Speak: Is Feedback on Facebook a Source of Firms' Innovation?
Irene Bertschek & Reinhold Kesler
Information Economics and Policy, forthcoming

Social media open up new possibilities for firms to exploit information from various external sources. Does this information help firms to become more innovative? Combining firm-level survey data with information from firms’ Facebook pages, we study the role that firms’ and users’ activities on Facebook play in the innovation process. We find that firms’ adoption of a Facebook page as well as feedback from users are positively and significantly related to product innovations. Our results withstand a large set of robustness checks, including estimations that take potential endogeneity of firms’ Facebook use as well as unobserved heterogeneity into account. Analyzing the content of firm posts and user comments reveals that Facebook adoption is only correlated with product innovations if firms and users actively participate in a discussion, especially when engagement is above-average and comes from both sides. 

Regulating Professional Players in Peer-to-Peer Markets: Evidence from Airbnb
Wei Chen, Zaiyan Wei & Karen Xie
Management Science, forthcoming

We study professional players and their roles in peer-to-peer (P2P) markets. Most notably, P2P home-sharing platforms (e.g., Airbnb) consist of both professional hosts and nonprofessional individual hosts. What are the roles of the professionals? Should home-sharing platforms regulate their participation? Professional hosts may primarily offer properties that nonprofessional hosts would not supply and attract more guests — the differentiation effect. Or they may mostly supply similar properties and compete with the nonprofessionals — the competition effect. Using a unique data set of Airbnb listings, we first find that professional hosts’ properties are more expensive and have superior characteristics than nonprofessionals’. Second, we capitalize on a quasi-experiment in which Airbnb capped the number of properties a host can manage in several cities in the United States to determine the roles of professional hosts. With different predictions (about the policy impacts) under the differentiation versus competition effects, we find evidence suggesting the dominance of the latter. In particular, the policy increased the supply from nonprofessional hosts, and the price level of nonprofessional properties as a group went up after the policy. However, our findings of heterogeneity in policy impacts suggest that the dominance of competition is less prominent in certain markets. Finally, we find that the platform was not worse off in attracting reservations or securing revenue after the policy. Our findings contribute to both theory and practice as they reveal the roles of professional players and how P2P platforms can manage their participation.

The Profitability of Purchase Limits During Shortages
Jihwan Moon & Steven Shugan
Journal of Marketing Research, forthcoming

Pandemics, natural disasters (e.g., hurricanes, droughts, fires), strikes, piracy, and other events can unexpectedly disrupt supply or spike demand, creating shortages. Unlike ordinary stockouts caused by store-specific inventory policies, shortages involve the entire supply chain. One tool for managing shortages is imposing purchase limits. Purchase limits restrict the quantity each shopper can purchase of the scarce product (e.g., gasoline, toilet paper, sanitizers, meat, batteries), possibly increasing availability to other shoppers. Although altruistic stores might use purchase limits for egalitarian goals (e.g., reducing hoarding, waste, panic buying, arbitrage, unfair distribution), the authors find that profit-maximizing stores can use purchase limits to increase profits during shortages. These findings suggest that stores’ price-and-limit strategies depend on shortage severity, store size, competition, and seasonality. For moderate shortages, large multiproduct stores, where average shopping basket sizes are large, should maintain low prices and impose limits, whereas small stores should increase prices and not impose limits. For severe shortages, by contrast, large stores should keep low prices but not impose limits, whereas small stores should increase prices and impose limits. Generally, large stores benefit from increased future store traffic when they impose limits. Interestingly, purchase limits can improve both store profits and, with lower prices, consumer surplus. 

The influence of food recommendations: Evidence from a randomized field experiment
Kamal Bookwala, Caleb Gallemore & Joaquín Gómez-Miñambres
Economic Inquiry, forthcoming

We report results from a randomized field experiment conducted at two food festivals. Our primary aim is to assess the impact of two types of recommendations commonly observed in food settings: most popular and chef's choice. We find that the most popular is the only recommendation that significantly increased consumers' demand relative to a baseline without recommendations. Furthermore, we find that this effect only holds for subjects from outside the local region. Our results are consistent with previous studies indicating information on peers' choices is a powerful influence on consumers' decisions in the absence of prior knowledge.


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