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

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  • Jonathan Beck

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. ZUSAMMENFASSUNG - (Die Verkaufswirkung von Mundpropaganda: ein Modell für kreative Produkte und Schätzwerte für Romane) Meistens erreichen die wöchentlichen Verkäufe von kreativen Produkten wie Musikalben, Kinofilmen oder Büchern kurz nach Veröffentlichung ihren Höhepunkt und nehmen dann schnell ab. In einigen Fällen jedoch zeigen sie einen buckelartigen Verlauf mit zunächst ansteigenden Verkäufen. Eine populäre Erklärung für dieses Phänomen beruht auf der Existenz von Mundpropaganda unter heterogenen Käufern, doch bisherige Studien gehen typischerweise von der Annahme homogener Käufer aus oder vernachlässigen Mundpropaganda gänzlich. Dieses Papier betrachtet ein Modell der Verbreitung neuer Produkte unter heterogenen Käufern, welches eine Quantifizierung der Verkaufswirkung von Mundpropaganda ermöglicht. Das Modell beinhaltet Weihnachtsverkäufe als Spezialfall. Alle Modellparameter haben eine intuitive Bedeutung. Ergebnisse einer Simulation zeigen, dass die Parameter empirisch geschätzt werden können, wenn die Daten einen hinreichend großen Teil des Verkaufszyklus eines Titels abdecken und nicht zu volatil sind. Das Modell wird auf Scannerdaten für vier exemplarische Romane angewendet.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number SP II 2006-16.

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Length: 36 pages
Date of creation: Sep 2006
Date of revision:
Publication status: Published in the Journal of Cultural Economics , Vol. 31(1), Mar. 2007, pp. 5-23.
Handle: RePEc:wzb:wzebiv:spii2006-16

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

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References

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  1. Waldfogel, Joel, 1993. "The Deadweight Loss of Christmas," American Economic Review, American Economic Association, vol. 83(5), pages 1328-36, December.
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Citations

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Cited by:
  1. Aguzzoni, Luca & Argentesi, Elena & Ciari, Lorenzo & Duso, Tomaso & Tognoni, Massimo, 2013. "Ex-post merger evaluation in the UK retail market for books," DICE Discussion Papers 98, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Edoardo Gaffeo & Antonello E. Scorci & Laura Vici, 2008. "Demand Distribution Dynamics in Creative Industries: the Market for Books in Italy," Department of Economics Working Papers 0804, Department of Economics, University of Trento, Italia.
  3. Jonathan Beck, 2006. "The Sales Effect of Word of Mouth: A Model for Creative Goods and Estimates for Novels," CIG Working Papers SP II 2006-16, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. Pérona, Mathieu & Pouyet, Jérôme, 2010. "Le prix unique du livre à l'heure numérique," Opuscules du CEPREMAP, CEPREMAP, number 19.
  5. Beck, Jonathan, 2008. "Diderot´s rule," Discussion Papers, Research Unit: Competition and Innovation SP II 2008-13, Social Science Research Center Berlin (WZB).
  6. John Ashworth & Bruno Heyndels & Kristien Werck, 2010. "Expert judgements and the demand for novels in Flanders," Journal of Cultural Economics, Springer, vol. 34(3), pages 197-218, August.
  7. Fernández Blanco, Víctor & Prieto Rodríguez,Juan, 2009. "Análisis de los hábitos de lectura como una decisión económica/," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 27, pages 113-138, Abril.
  8. Khim Yong, Goh & Kai-Lung, Hui & I.P.L., Png, 2008. "Social Interaction, Observational Learning, and Privacy: the "Do Not Call" Registry," MPRA Paper 8225, University Library of Munich, Germany.
  9. Duso, Tomaso & Argentesi, Elena & Aguzzoni, Luca & Ciari, Lorenzo & Tognoni, Massimo, 2013. "Ex Post Merger Evaluation in the UK Book Retail Market," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80025, Verein für Socialpolitik / German Economic Association.
  10. Jason Potts & Stuart Cunningham & John Hartley & Paul Ormerod, 2008. "Social network markets: a new definition of the creative industries," Journal of Cultural Economics, Springer, vol. 32(3), pages 167-185, September.
  11. Ohio University & Department of Economics & Hailey Hayeon Joo, 2009. "Social Learning and Optimal Advertising in the Motion Picture Industry," 2009 Meeting Papers 513, Society for Economic Dynamics.

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