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Economic Foundations for Entertainment, Media, and Technology

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Title: Economic Foundations for Entertainment, Media, and Technology Author: William Greene Last modified by: williamgreene Created Date: 10/6/2000 6:44:57 PM – PowerPoint PPT presentation

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Title: Economic Foundations for Entertainment, Media, and Technology


1
Market for Experience Goods
2
Economic Foundations for Entertainment and Media
  • Special Features of the Demand for Experience
    Goods

3
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

4
Demand for a Good or Service from the Consumers
Viewpoint
Experience Good Utility Good
Derived Demand SharedExperience Gasoline
Final Demand Purely Personal, Internal Shoes
5
A Social Capital Stock
  • Art Dali, Pollock, Monet, Picasso,
    Barnett, OKeefe,
  • 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, Youre 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

6
Someone Elses 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

7
Social Capital Stock
  • Art
  • Opera
  • Movies
  • Theater
  • Books
  • Sports Yours?
  • Gambling
  • TV
  • Politics
  • Amusement
  • Media
  • Music
  • Any Others?

8
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.

9
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.
10
Wal Mart and Social Capital
Does Wal-Mart reduce social capital? Art Carden
Charles Courtemanche Jeremy MeinersPublic
Choice, 138 109136
  • 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.

11
Bowling Alone Was About Social Capital
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. Were 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, womens roles and
other factors have contributed to this decline.
12
Maintaining Your Social Capital
Social media have greatly reduced the cost of
maintenance and acquisition of social capital.
13
Interdependent Demands
  • Bandwagon effects Person is demand depends on
    the perceived demand of others
  • d(i) f price, other prices, Income, ?jd(j)
  • Amount demanded depends on the amount othershave
    purchased (or are believed to have purchased)
  • Applications
  • Bestsellers (books, music, movies)
  • Movies
  • Electronic innovations
  • This years hot toy
  • Others?

14
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.

15
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)

16
Excess Demand
? Paul McCartneys (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.
17
Excess Demand for U2
18
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
  • Uc(i) fc(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.

19
Fastest Growing and Largest Website on the Planet
Until 2007
What happened to Myspace? (1600 employees in
2008, 200 in 2011)
20
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21
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22
Facebook
  • The product
  • Information Sharing
  • Virtual Community
  • Its not just for the fun of it.
  • Advertising sales
  • Valuation

23
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24
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25
19,000,000,000
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