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The Sales Effect of Word of Mouth: A Model for Creative Goods and Estimates for Novels

Authors/Editors: Beck, J.
Published: 2007
Type: Articles in Refereed Journals (International)
ISBN/ISSN: 0885-2545
Published by: Journal of Cultural Economics
: 31(1), pp. 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.