Market for Experience Goods

Market for Experience Goods

The Demand for Experience Goods is Unlike Familiar Commodity Markets • What is the good? • Qualities that differ between experience and “humdrum” goods • Intangible nature of the good • Motivation for consumption • Other aspects?

Experience vs. Humdrum Good GoodWhat distinguishes them?

HUMDRUM vs. EXPERIENCE GOODMarket for a conventional commodityWhy does one buy a toaster or a wrench or a cup of coffee? • Functionality of the product • Utilitarian nature of demand • ‘Experience’ (even aesthetics generally secondary or irrelevant)

Form vs. FunctionExperience vs. Commodity The book can serve different functions Education Prestige Personal enjoyment

Not a sharp distinction:Humdrum good or experience? “There is a market for experiences.” A sharp distinction between experiences and humdrum goods is not necessary to analyze it.

Coffee as an Experience? The product provides a functionality (caffeine) and an experience.

The Trump Shuttle promised a ride with A list people between DC and New York Trump pushed to make the new shuttle a luxury service… The Shuttle’s core passengers chose it for its convenience, not its costly luxury features. Trump Shuttle never turned a profit.

Markets for Experiences What differentiates the demand for experience goods from the demand for humdrum goods? What features of the markets are similar?

Markets for Experiences The classical theory of demand falls short when applied to markets for experience goods. (1) Private consumption vs. consumption with a group There are externalities (2) Motivation for consumption Functionality vs. intangible benefit (3) Others?

The Demand for Experience Goods is Unlike Familiar Commodity Markets A quality that differs between experience and “humdrum” goods External effects in consumption

The Coolest Computer Ever Made It failed the market test. How does the buyer project their “coolness?” Did it fail because it looked like a toaster? It was very expensive as a computer AND it was not possible to communicate its coolness to others.

Market Leader Also cool. Why did it pass the market test?

Even More Cool What differentiates this cool appliance from the coolest computer ever made?

iPhone as Fashion Statement Eccentric is in the eye of the (external) beholder. New York Times, April 2, 2012, page B1.

Very Cool

The Demand for Experience Goods is Unlike Familiar Commodity Markets A quality that differs between experience and “humdrum” goods Joint effects in consumption:Consumption of some experience goods is done with other consumers.

Shared Experience =Common Experience

Also a Shared Experience Different from a book. How so – from the consumer’s viewpoint? Same as a book. How so – from the economist’s viewpoint?

Shared Simultaneous and Coincident Experience The Antichrist [T]he art film has been ghettoized as audiences have fragmented into niche markets. The very notion of what a movie audience is has changed: how do you arouse a public when many are no longer watching movies publicly, but sitting at home in front of their entertainment centers? It's a powerful feeling to share an audience's collective gasp, such as the one elicited by a startling suicide in Michael Haneke's Cache’.That can't be duplicated in solitude. But increasingly rare is the breakthrough movie, such as a Blue Velvet or a Brokeback Mountain, that reaches a mass audience. These days we get our culture jolts in daily, bite-size portions on YouTube or Facebook, a kind of viral fast-food diet of scandal, easily digested and quickly forgotten. [David Ansen, Newsweek]

Shared Experience (?) (August 16, 1969)

Shared Experience? Not quite a theater experience. Definitely in great demand.

Understanding the Demand for Experience Goods • Differences between experience and “humdrum” goods • Motivation for consumption • Internal utility • External effects: Prestige Membership Common experiences Pure externalities (e.g., games) • Implications for markets: Are these aspects priced? (yes)

Market for Experience Goods