Economic Foundations for Entertainment, Media, and Technology

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Market for Experience Goods
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Experience Humdrum Good
Good
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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?

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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)

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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

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Coffee as an Experience?
The product provides a functionality (caffeine)
and an experience.
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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 Shuttles core passengers chose it
for its convenience, not its costly luxury
features. Trump Shuttle never turned a profit.
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Form vs. FunctionExperience vs. Commodity The
book can serve different functions
Education
Prestige
Personal enjoyment
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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.
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Market Leader
Also cool. Why did it pass the market test?
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Even More Cool
What differentiates this cool appliance from the
coolest computer ever made?
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iPhone as Fashion Statement
New York Times, April 2, 2012, page B1.
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VeryCool
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Shared Experience Common Experience
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Also a Shared Experience
Different from a book? How so from the
consumers viewpoint? Same as a book? How so
from the economists viewpoint?
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Shared Simultaneous and Coincident Experience
The Antichrist
The 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
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Shared Experience (?)
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Shared Experience?
Not quite a theater experience. Definitely in
great demand.
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Interactive gaming
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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?