demand for experience goods 1:c - 1(20) market for experience goods

Demand for Experience Goods1:C - 1(20)

Market for Experience Goods


Experience Humdrum Good Good


Entertainment and Media: Markets and Economics

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

The classical theory of demand falls short when applied to markets for experience goods. Why?


HUMDRUM vs. EXPERIENCE GOODMarket for a conventional commodity

Why 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)


The Demand for Experience Goods is Unlike Familiar Commodity Markets

What is the good? Three qualities that differ between

experience and “humdrum” goods Intangible nature of the good External effects of consumption Motivation for consumption


Coffee as an Experience?

$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50$5.00

Commodity Good Service Experience

Price

The product provides a functionality (caffeine) and an experience.


Experience? The Trump Shuttle promised a ride with A list people

between DC and New YorkTrump 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.


Form vs. FunctionExperience vs. Commodity The book can serve different functions

Personal enjoyment

EducationPrestige


Goods: The Coolest Computer Ever Made

Why did it fail 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

New York Times, April 2, 2012, page B1.


VeryCool


Shared Experience =Common Experience


Also a Shared Experience

Different from a book? How so – from the consumers viewpoint?

Same as a book? How so – from the economist’s viewpoint?


[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]

The Antichrist

Shared Simultaneous and Coincident Experience


Shared Experience (?)


Shared Experience?

Not quite a theater experience.Definitely in great demand.


Interactive gaming


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?

demand for experience goods 1:c - 1(20) market for experience goods

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