The Handmade Effect: A Model of Conscious Shopping in an Industrialised Economy

Jasmin Droege ()
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Jasmin Droege: University of Oxford

Review of Industrial Organization, 2022, vol. 60, issue 2, No 5, 263-292

Abstract: Abstract Although online marketplaces for handmade products persist, little theoretical research has been undertaken to explain why firms choose a handmade strategy. In this paper, I develop a model that can explain the persistence through a handmade effect on the consumer side. I show that when consumers are willing to pay a sufficiently high handmade premium, the firm chooses production by hand over superior machine production. When the firm is part of a duopoly, the existence of consumers who care about the conditions under which a product is manufactured can explain the firms’ specialisation and, thus, the observed co-existence of handmade and machine-made products in the economy. Such specialisation is efficient, and can be robust to collusion. The presence of shoppers who are uncertain about the appropriate behaviour may enable the monopolist to use a handmade strategy to signal a social norm of conscious consumption.

Keywords: Conscious shopper; Handmade premium; Norm; Production; Signaling; Specialisation (search for similar items in EconPapers)
JEL-codes: C70 D11 D21 D42 D82 D91 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11151-021-09844-9

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