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The sales effect of word of mouth: a model for creative goods and estimates for novels

Jonathan Beck

Journal of Cultural Economics, 2007, vol. 31, issue 1, 5-23

Abstract: Weekly sales of creative goods—like music records, movies, or books—usually peak shortly after release and then decline quickly. In many cases, however, they follow a hump-shaped pattern where sales increase for some time. A popular explanation for this phenomenon is word of mouth among a population of heterogeneous buyers, but previous studies typically assume buyer homogeneity or neglect word of mouth altogether. In this paper, I study a model of new-product diffusion with heterogeneous buyers that allows for a quantification of the sales effect of word of mouth. The model includes Christmas sales as a special case. All parameters have an intuitive interpretation. Simulation results suggest that the parameters are estimable for data that are not too volatile and that cover a sufficiently large part of a title’s life cycle. I estimate the model for four exemplary novels using scanner data on weekly sales. Copyright Springer Science+Business Media, LLC 2007

Keywords: New-product diffusion; Word of mouth; Creative industries; C22; L82; M3 (search for similar items in EconPapers)
JEL-codes: C22 L82 M3 I I I (search for similar items in EconPapers)
Date: 2007
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