Working Papers
Social Media and Consumers' Countervailing Power: The Cottage Cheese Boycott (February 2014) with Igal hendel and Yossi Spiegel
In the summer of 2011 a consumer boycott on cottage cheese was organized in Israel via Facebook. The boycott was prompted by the steep increase in prices after price controls were lifted in 2006. We document the evolution of cottage cheese prices and quantities before and after the boycott. The boycott was successful as prices declined immediately and stayed low until the end of the sample period (April 2012) and beyond. We find that price elasticities, in particular cross price elasticities, substantially increased following the boycott. Moreover, the boycott had a more negative impact on demand and own price elasticities increased more in areas where the use of social media is likely to be high, suggesting the importance of social media in facilitating consumer mobilization. Increased price elasticities, however, cannot fully explain the observed price changes. We conjecture that firms lowered their prices to avoid further damage to their image, for fear the boycott will spread to other products, concerns about re-regulation of prices and, possibly, from class action lawsuits.
Heterogeneous Price Information and the Effect of Competition (September 2012) with Jose Luis Moraga Gonzalez
This paper examines how the distribution of prices and consumer welfare change with the number of competitors in a model where consumers differ in the amount of price information they have. The number of firms affects prices (and welfare) by changing consumers' information about prices. We only assume that an increase in the number of competitors raises the average number of prices observed by a consumer in the market and (weakly) lowers the probability consumers see only one price. Under this assumption, the lower percentiles of the price distribution decrease with an increase in the number of firms. We then derive a necessary and sufficient condition under which all percentiles of the price distribution decrease when competition is intensified. In such a situation, some percentiles fall more than others, which leads to asymmetric welfare gains from increased competition. We also provide a necessary and sufficient condition under which the higher percentiles of the distribution of prices paid increase. When this happens, the probability that a consumer already paying a high price will pay even a higher price increases and it may even be the case that some consumers experience a welfare loss on average. Nevertheless, the weighted consumer surplus always (weakly) raises with increased competition. We illustrate these results by estimating the response of the distribution of prices to competition in the gasoline retail market in the Netherlands. We find that all percentiles of the price distribution decrease with intensified competition but the magnitude of the change, although not large, varies along the distribution in a way similar to that predicted by the model. We also estimate that the less informed consumers benefit more from increased competition than the more informed ones.
In the summer of 2011 a consumer boycott on cottage cheese was organized in Israel via Facebook. The boycott was prompted by the steep increase in prices after price controls were lifted in 2006. We document the evolution of cottage cheese prices and quantities before and after the boycott. The boycott was successful as prices declined immediately and stayed low until the end of the sample period (April 2012) and beyond. We find that price elasticities, in particular cross price elasticities, substantially increased following the boycott. Moreover, the boycott had a more negative impact on demand and own price elasticities increased more in areas where the use of social media is likely to be high, suggesting the importance of social media in facilitating consumer mobilization. Increased price elasticities, however, cannot fully explain the observed price changes. We conjecture that firms lowered their prices to avoid further damage to their image, for fear the boycott will spread to other products, concerns about re-regulation of prices and, possibly, from class action lawsuits.
Heterogeneous Price Information and the Effect of Competition (September 2012) with Jose Luis Moraga Gonzalez
This paper examines how the distribution of prices and consumer welfare change with the number of competitors in a model where consumers differ in the amount of price information they have. The number of firms affects prices (and welfare) by changing consumers' information about prices. We only assume that an increase in the number of competitors raises the average number of prices observed by a consumer in the market and (weakly) lowers the probability consumers see only one price. Under this assumption, the lower percentiles of the price distribution decrease with an increase in the number of firms. We then derive a necessary and sufficient condition under which all percentiles of the price distribution decrease when competition is intensified. In such a situation, some percentiles fall more than others, which leads to asymmetric welfare gains from increased competition. We also provide a necessary and sufficient condition under which the higher percentiles of the distribution of prices paid increase. When this happens, the probability that a consumer already paying a high price will pay even a higher price increases and it may even be the case that some consumers experience a welfare loss on average. Nevertheless, the weighted consumer surplus always (weakly) raises with increased competition. We illustrate these results by estimating the response of the distribution of prices to competition in the gasoline retail market in the Netherlands. We find that all percentiles of the price distribution decrease with intensified competition but the magnitude of the change, although not large, varies along the distribution in a way similar to that predicted by the model. We also estimate that the less informed consumers benefit more from increased competition than the more informed ones.