Aspects of Demand for Experience Goods 1:D - 1(25) Market for Experience Goods

Aspects of Demand for Experience Goods 1:D - 2(25) Economic Foundations for Entertainment and Media Special Features of the Demand for Experience Goods

Aspects of Demand for Experience Goods 1:D - 3(25) 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  Derived demands and social capital  Common interests  Interdependent utilities  Fads and herding  Winner take all markets

Aspects of Demand for Experience Goods 1:D - 4(25) Demand for a Good or Service from the Consumer’s Viewpoint Experience Good Utility Good Derived Demand Shared Experience Gasoline Final Demand Purely Personal, Internal Shoes

Aspects of Demand for Experience Goods 1:D - 5(25) A Social Capital Stock Art 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

Aspects of Demand for Experience Goods 1:D - 6(25) Someone Else’s Capital Stock Art Arnold Böcklin Opera - Movies The Truman Show, Tinklebell, Pulp Fiction, The Matrix Theater - Books Max Dendermonde, Simon Vestdijk, Gabriel García Márquez Sports - Gambling - TV Martin Morning, Sesame Street, Mega Mindy, Kim Possible, The Five, Phineas and Ferb Politics - Amusement Family games Media NRC, Le Monde, Nice Matin, Dagens Industry, Wikipedia, Reuters Music 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 1:D - 7(25) Social Capital Stock Art Opera Movies Theater Books Sports Yours? Gambling TV Politics Amusement Media Music Any Others?

Aspects of Demand for Experience Goods 1:D - 8(25) The Social Capital Stock  Functions it serves in the community  Aspects – It is similar to other capital stocks 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.

Aspects of Demand for Experience Goods 1:D - 9(25) 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.

Aspects of Demand for Experience Goods 1:D - 10(25) Wal Mart and Social Capital  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.) Difficult to devise a persuasive empirical test The test they devised did not support the claim. Does Wal-Mart reduce social capital? Art Carden · Charles Courtemanche · Jeremy Meiners Public Choice, 138: 109–136

Aspects of Demand for Experience Goods 1:D - 11(25) 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. Bowling Alone Was About Social Capital

Aspects of Demand for Experience Goods 1:D - 12(25) Maintaining Your Social Capital Social media have greatly reduced the cost of maintenance and acquisition of social capital.

Aspects of Demand for Experience Goods 1:D - 13(25) Interdependent Demands Bandwagon effects: Person i’s demand depends on the perceived demand of others  d(i) = f [price, other prices, Income,  j d(j)]  Amount demanded depends on the amount others have purchased (or are believed to have purchased) Applications  Bestsellers (books, music, movies)  Movies  Electronic innovations  This year’s hot toy  Others?

Aspects of Demand for Experience Goods 1:D - 14(25) 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.

Aspects of Demand for Experience Goods 1:D - 15(25) Extreme Case: Concerts   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)

Aspects of Demand for Experience Goods 1:D - 16(25) 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.

Aspects of Demand for Experience Goods 1:D - 17(25) Excess Demand for U2

Aspects of Demand for Experience Goods 1:D - 18(25) 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.

Aspects of Demand for Experience Goods 1:D - 19(25) Fastest Growing and Largest Website on the Planet Until 2007 What happened to Myspace? (1600 employees in 2008, 200 in 2011)

Aspects of Demand for Experience Goods 1:D - 20(25)

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Aspects of Demand for Experience Goods 1:D - 22(25) Facebook  The product Information Sharing Virtual Community  It’s not just for the fun of it. Advertising sales Valuation

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Aspects of Demand for Experience Goods 1:D - 24(25)

Aspects of Demand for Experience Goods 1:D - 25(25) $19,000,000,000