Market for Experience Goods
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Aspects of Demand for Experience Goods
Economic Foundations for
Entertainment and Media
Special Features of the Demand
for Experience Goods
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Aspects of Demand for Experience Goods
Aspects of the Demand for Recreation
 A Standard Microeconomic Model for Demand
 Purely internal consumption
 Rational addiction – a dynamic model of consumption
 Problems Applying the Model to Experience Goods
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Derived demands and social capital
Common interests
Interdependent utilities
Fads and herding
Winner take all markets
Aspects of Demand for Experience Goods
Demand for a Good or Service from the
Consumer’s Viewpoint
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Experience
Good
Utility Good
Derived
Demand
Shared
Experience
Gasoline
Final
Demand
Purely Personal,
Internal
Shoes
Aspects of Demand for Experience Goods
A Social Capital Stock
Dali, Pollock, Monet, Picasso, Barnett, O’Keefe,
Warhol, Haring, Wyeth, Rembrandt, Klimt
Opera
Pavarotti, Carmen, Tommy, Aida, Soap
Movies
Gone with the Wind, Casino Royale, Kill Bill, Brave One, KONY2012
Theater
Lion King, TONY, Rent, Blue Man Group, Wicked, Hairspray
Books
E. Leonard, J. Collins, W. Greene, S.Hawking, H. Clinton, Sarah Palin,
Dan Brown, T. Clancy, J. Grisham, T. Wolfe, J. Michener, Ann Coulter
Sports
Yankees, Rugby, T. Woods, Super Bowl, Replay Camera,
Agassi, Lebron James, Hat trick, A-Rod, March Madness, Olympics,
Red Sox, NASCAR, Giants, Olympics,
Gambling Full House Blackjack Point Spread Final Four
TV
Seinfeld, Jimmy Fallon, Jay Leno, Survivor, American Idol, You’re Fired,
Olsen Twins, Real Housewives of Timbuktu, CNN, History Channel
Politics
(You name it)
Amusement Sky diving Roller coaster Bungee jump
Media
Time, Slate, People, Scientific American, The Economist, NYT, YouTube
Music
Britney Spears, Norah Jones, BB King, Clapton, Grammys, Eminem,
VMA, Dire Straits, Billy Joel, Bruno Mars, Fleetwood Mac, Music Choice
Gadgets
iPod, iPhone, Blackberry, Guitar Hero, Galaxy, Tesla
Art
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Aspects of Demand for Experience Goods
Someone Else’s Capital Stock
Art
Opera
Movies
Theater
Books
Sports
Gambling
TV
Politics
Amusement
Media
Music
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Arnold Böcklin
The Truman Show, Tinklebell, Pulp Fiction, The Matrix
Max Dendermonde, Simon Vestdijk, Gabriel García Márquez
Martin Morning, Sesame Street, Mega Mindy, Kim Possible,
The Five, Phineas and Ferb
Family games
NRC, Le Monde, Nice Matin, Dagens Industry, Wikipedia, Reuters
XFM, SlamFM, NonStopPlay.com, Radio4.nl, BBC World Service,
France Inter, DJ Tiesto, Yelle, Eminem, Queen, Michael Jackson,
Lionel Richie, ABC, Robbie Williams
Aspects of Demand for Experience Goods
Social Capital Stock
Art
Opera
Movies
Theater
Books
Sports
Yours?
Gambling
TV
Politics
Amusement
Media
Music
Any Others?
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Aspects of Demand for Experience Goods
The Social Capital Stock
Functions it serves in the community
 Aspects – It is similar to other capital stocks
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It requires maintenance
It depreciates over time
Investment is required to maintain and grow it
Implications for demand: A motivation for
consumption beyond internal satisfaction.
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Aspects of Demand for Experience Goods
TIVO Capital
TiVo has made me
realize that “pulling
the plug” rather than
recording shows
separates the TV
boycotter from the
rest of society. My
TiVo allows me to
contribute to
conversations
revolving around TV
rather than silently
observing them.
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Aspects of Demand for Experience Goods
Wal Mart and Social Capital
Does Wal-Mart reduce social capital?
Art Carden · Charles Courtemanche · Jeremy Meiners
Public Choice, 138: 109–136
Increases consumption of “humdrum goods”
with less external connectedness
 Reduce connection to the community by
lowering viability of small “local” businesses
 (Unfortunately, the empirical data did not
support the hypothesis.)
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Difficult to devise a persuasive empirical test
The test they devised did not support the claim.
Aspects of Demand for Experience Goods
Bowling Alone Was About Social Capital
Putnam warns that our stock of social capital
– the very fabric of our connections with each
other, has plummeted, impoverishing our lives
and communities.
Putnam draws on evidence including nearly
500,000 interviews over the last quarter
century to show that we sign fewer petitions,
belong to fewer organizations that meet, know
our neighbors less, meet with friends less
frequently, and even socialize with our families
less often. We’re even bowling alone. More
Americans are bowling than ever before, but
they are not bowling in leagues. Putnam
shows how changes in work, family structure,
age, suburban life, television, computers,
women’s roles and other factors have
contributed to this decline.
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Aspects of Demand for Experience Goods
Maintaining Your Social Capital
Social media have greatly reduced the cost of
maintenance and acquisition of social capital.
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Aspects of Demand for Experience Goods
Interdependent Demands
Bandwagon effects: Person i’s demand
depends on the perceived demand of others
 d(i) = f [price, other prices, Income, jd(j)]
 Amount demanded depends on the amount others
have purchased (or are believed to have purchased)
Applications
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Bestsellers (books, music, movies)
Movies
Electronic innovations
This year’s hot toy
Others?
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Aspects of Demand for Experience Goods
Implications of the Theory
Elasticity of demand increases as sales increase
(1) Demand shifts outward as buyers see
aggregate sales rise. (It shifts outward
because it shifts outward.)
(2) Lowering the price brings larger benefits (in
terms of increased sales) than it would
otherwise.
(3) Advertising to increase demand is likely to be
more effective than it would be otherwise. The
success of advertisting is leveraged.
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Aspects of Demand for Experience Goods
Extreme Case: Concerts
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i d(i) = i d(i)[price, other prices, Income,D]
D = total demanded (observed by the consumer)
Total demand depends on observed total demand
Effect can produce positive relation between price and quantity.
(Note, not a “demand curve.”)
For the concert, MC = 0 (or close to it)
End result: Profit = revenue maximization may occur with excess
demand (fans outside the facility)
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Aspects of Demand for Experience Goods
Excess Demand
 Paul McCartney’s (April, 2002) concert in Madison Square Garden
was sold out within two hours of the opening of the box office. A
representative of the Garden was asked what the effect of
doubling the $50 - $150 ticket price would be. Her reply: “It
probably would have taken three hours to sell out.”
 A 1998 Spice Girls concert at the Garden sold out within minutes.
 In the 2007 Reunion Tour: A subsequent Dec. 15 one-off show at
London's O2 Arena sold out in 38 seconds.
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Aspects of Demand for Experience Goods
Excess Demand for U2
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Aspects of Demand for Experience Goods
Network Externalities
 Utility from use of a good by a person depends on the
total number of people using the good.
 c(i) = consumption of the good or service
 U[c(i)] = f[c(i), income, other goods, c(j),c(k),…]
 Applications:
 Telegraph, Telephone, Fax,Cellular phone
 Operating system, word processor, etc.
 Social network – Facebook, LinkedIn, Twitter
 Implications:
 Monopoly. Natural? Desirable?
 Quepasa.com (is now meetme.com)
 This monopoly is demand based, not supply.
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Aspects of Demand for Experience Goods
Fastest Growing and Largest Website
on the Planet Until 2007
What happened to Myspace? (1600 employees in 2008, 200 in 2011)
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Aspects of Demand for Experience Goods
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Aspects of Demand for Experience Goods
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Aspects of Demand for Experience Goods
Facebook
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The product
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Information Sharing
Virtual Community
It’s not just for the fun of it.
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Advertising sales
Valuation
Aspects of Demand for Experience Goods
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Aspects of Demand for Experience Goods
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Aspects of Demand for Experience Goods
$19,000,000,000
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Aspects of Demand for Experience Goods