Sell-outs, Beliefs, and Bandwagon Behavior

Nick Vikander

Sell-outs, Beliefs, and Bandwagon Behavior

Abstract

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.

Original language	English
Publication status	Published - 2012
Externally published	Yes

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Vikander, N. (2012). Sell-outs, Beliefs, and Bandwagon Behavior. https://sites.google.com/site/nickvikander/home/files/Vikander-Caps-Nov13.pdf?attredirects=0&d=1

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Sell-outs, Beliefs, and Bandwagon Behavior

Abstract

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