Working Paper: NBER ID: w30351
Authors: El Hadi Caoui; Chiara Farronato; John J. Horton; Robert Schultz
Abstract: For some kinds of goods, rarity itself is valued. "Fashionable'" goods are demanded in part because they are unique. In this paper, we explore the economics of rare goods using auctions of limited-edition shoes held by an e-commerce platform. We model endogenous entry and bidding in multi-unit auctions and construct demand curves from realized bids. We find that doubling inventory reduces willingness to pay by 7-15%. From the producer perspective, ignoring the value of rarity leads to substantial overproduction: auctioned quantities are 82% above the profit-maximizing level. From the consumer perspective however, the negative spillovers of restricting quantity more than offset the benefits of rarer goods.
Keywords: consumer demand; social influences; e-commerce; fashion goods; auctions
JEL Codes: D12; D44; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Rarity (Y60) | Consumer Willingness to Pay (D11) |
| Doubling Inventory (D25) | Consumer Willingness to Pay (D11) |
| Ignoring Role of Rarity (D81) | Overproduction (E23) |
| Restricting Quantity (D45) | Negative Spillovers (D62) |
| Social Influences (C92) | Inventory Decisions (D25) |