The Midol Monopolist

A student writes that she became a monopolist in her freshman dorm — hoarding Midol to sell to her dorm-mates at the time each month when dorm-mate had a quite inelastic demand for this product. She also realized that at that time, there is an increasingly inelastic demand for chocolate-chip cookies, so she hoarded and sold those, too. She correctly notes that the two goods are complementary over time — more of both consumed on some days than on others. But I bet that over a short interval, they are substitutes — the satisfaction from one reduces the demand for the other. This illustrates how we need to think about the time dimension of consumer choice. I would also bet that her monopoly doesn’t last long. Anybody can bring the two products to the dorm and sell them — there are few barriers to entry. A better description is that she’s an innovating entrepreneur in what inherently will be a competitive industry.

(HT: A.S.)

Should You Ignore the Weather When Buying a New House or Car?

An NBER working paper (full PDF here) by Meghan R. Busse, Devin G. Pope, Jaren C. Pope, and Jorge Silva-Risso explores the role of projection bias when choosing a new car or house. It turns out that weather conditions are a huge factor when consumers are debating big purchases like houses or cars. The abstract:

Projection bias is the tendency to overpredict the degree to which one’s future tastes will resemble one’s current tastes. We test for evidence of projection bias in two of the largest and most important consumer markets – the car and housing markets. Using data for more than forty million vehicle transactions and four million housing purchases, we explore the impact of the weather on purchasing decisions. We find that the choice to purchase a convertible, a 4-wheel drive, or a vehicle that is black in color is highly dependent on the weather at the time of purchase in a way that is inconsistent with classical utility theory. Similarly, we find that the hedonic value that a swimming pool and that central air add to a house is higher when the house goes under contract in the summertime compared to the wintertime.

The Appeal of the Middle

New research (summarized by the BPS Research Digest) from Paul RodwayAstrid Schepman, and Jordana Lambert demonstrates that people seem to prefer items located in the middle:

"In replication of the centre-stage effect, it was found that when participants were presented with a line of five pictures, they preferred pictures in the centre rather than at either end," the authors write. "This applies when the line of pictures was arranged horizontally or vertically and when participants selected from five pairs of identical socks arranged vertically."  

The authors also discuss the policy implications of their work:

"If item location influences preference during the millions of purchasing choices that occur every day, it will be exerting a substantial influence on consumer behaviour. Moreover, choices from a range of options are made in many other contexts (e.g. legal and occupational), and it remains to be investigated whether the central preference remains with other formats and whether it extends to other types of decision."

Does Reviewer Quality Matter?

You can buy almost anything online these days -- hotel reservations, books, movies, etc. -- but how much does reviewer quality matter to online shoppers? A lot, according to research from Anindya Ghose and Panagiotis G. Ipeirotis. In a previous paper, the pair noticed that "demand for a hotel increases if the online reviews on TripAdvisor and Travelocity are well-written, without spelling errors; this holds no matter if the review is positive or negative." In a more recent paper, Ghose and Ipeirotis find similar trends for products on

The Art of Online Recommendations

Wired profiles Hunch, a company trying to master the art of online recommendations. Hunch participants respond to "Teach Hunch About You" questions, and their answers are fed into a master algorithm, which has already revealed some interesting correlations.

Sorbet Selection

For several years our local grocery story carried a brand of coconut sorbet, Ciao Bella, which we had for dessert several times a week. It was $5 per pint-pretty expensive-but worth much more than every penny. In the last month it hasn't been on the store's shelves. The manager informs me that they will not be stocking it...

Hands-Free Shopping

If Adam Smith were alive today, he might rely on InvisibleHand for his online shopping. The service, a Firefox add-on, notifies users if a product is available for less elsewhere, eliminating the need for price-comparison websites. The invisible hand never worked so quickly.

Give Me Your Odd Pairs

I love to collect examples of bizarre pairs of goods that sellers or buyers apparently believe are complements or substitutes.

Shoe Gazing

| Zappos created a map on its site showing, in real-time, orders being placed for its shoes across the U.S. Other than hypnotizing Zappos employees and allowing New Yorkers to see for themselves whether they have better fashion sense than the rest of the country, is the map doing anything to help Zappos sell more […]

What Else Acts Like Cheap Wine and Cigarettes?

Denis Defreyne It’s interesting to see how people’s spending patterns respond to a (presumably) temporary decline in income during the recession. Which items are more or less income-elastic in the short run? A pediatrician friend of ours mentions that he is seeing less business; when there are three kids with coughs, for example, a parent […]