Sell-outs, Beliefs, and Bandwagon Behavior

TY - UNPB

T1 - Sell-outs, Beliefs, and Bandwagon Behavior

AU - Vikander, Nick

PY - 2012

Y1 - 2012

N2 - This paper examines how a firm can strategically use sell-outs to manipulate consumer beliefs about aggregate demand. It considers a two-period setting with consumption externalities where certain consumers are boundedly rational. I show that selling out in period 1 can lead naive consumers to overestimate demand in period 2, which itself increases demand from all consumers. The firm uses sell-outs to manipulate beliefs whenever demand is lower than consumers expect, even if the fraction of naive consumers is small. It offers a period 1 price discount and charges a period 2 premium which can leave all sophisticated consumers better off.

AB - This paper examines how a firm can strategically use sell-outs to manipulate consumer beliefs about aggregate demand. It considers a two-period setting with consumption externalities where certain consumers are boundedly rational. I show that selling out in period 1 can lead naive consumers to overestimate demand in period 2, which itself increases demand from all consumers. The firm uses sell-outs to manipulate beliefs whenever demand is lower than consumers expect, even if the fraction of naive consumers is small. It offers a period 1 price discount and charges a period 2 premium which can leave all sophisticated consumers better off.

M3 - Working paper

BT - Sell-outs, Beliefs, and Bandwagon Behavior

ER -