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Hutter, Michael: Experience Goods, in: R.Towse (ed.). A Handbook of Cultural Economics, Second Edition, Cheltenham: Edward Elgar, 2011, p.211-215

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Abstract

The notion of 'experience goods' appears in two strands of literature. Th~ first one originates with Nelson (1970) and links ,consumer behaviour to information: in order to estimate the utility of an unkn.own good, the consumer has a choice of searching for information about the good or experiencing the good. Experience goods, in this theoreti-cal tradition, are goods with high search costs. The second ~trand of literature was trig-. gered by attempts to redefine the set of sectors that make up the economy by introducing . a 'creative sector.' whose·branches or industries are c;haracterized by unusually high rates · of product change, by high growth rates and by contributions to productivity in the rest ofth'e economy (DCMS,l998; UNCTAD, 2008). The coinmon feature of these branches· is seen in individual 'creative acts', but it has also been argued that the consumer's experi-. ence (Bille and Lorenzen, 2008; Bille, 2009) is the decisive feat{rre. The notion-of 'experi-.. ence goods' appears to be of increasfng theoretical and practical relevance. · · Experience as a nieans to an end According to Nelson (1970), consumers who are in the market for goods, but have inconi-. plete information about the benefits obtained from consuming them, have two alterna-. tives to find such information: they can searc4 for availab~e external signals regarding the expected benefits, or they can· experience the good and thus generate their own internal information. E.x;periences in this modeli:J.re experiments to discover something about the true state of the world that, once attained, will lead to stable choices. Three · categqries of goods are distinguished: (1) goods with easy search characteristics, whose quality attributes· can be inspected before buying, like nails; (2) goods with high search costs which lead the buyer to experience the good in order to determip.e the quality, like movies and wine; (3) goods whose effects depend on credence even after the experience, . ·
'.
29
Experie~cegoods
Michael Hutter
The
notion
of
'experience goods' appears in two strands
of
literature.
Th~
first one
originates with Nelson (1970) and links ,consumer behaviour to information: in order
to
estimate the utility
of
an unkn.own good, the consumer has a choice
of
searching for
information
about
the good or experiencing the good. Experience goods, in this theoreti-
cal tradition, are goods with high search costs. The second
~trand
of
literature was trig- .
gered by attempts to redefine the set
of
sectors
that
make up the economy by introducing
. a 'creative sector.' whose·branches or industries are c;haracterized by unusually high rates ·
of
product change, by high growth rates and by contributions to productivity in the rest
ofth'e economy
(DCMS,l998;
UNCTAD, 2008). The coinmon feature
of
these branches·
is seen in individual 'creative acts',
but
it has also been argued
that
the consumer's experi- .
ence (Bille and Lorenzen, 2008; Bille, 2009)
is
the decisive feat{rre. The notion-of 'experi-
..
ence goods' appears to be
of
increasfng theoretical and practical relevance.
··
Experience
as
a
nieans
to
an
end
According to Nelson (1970), consumers who are in the market for goods, but have inconi-
. plete information about the benefits obtained from consuming them, have two alterna-.
tives to find such information: they can searc4 for
availab~e
external signals regarding
the expected benefits, or they can· experience the good and thus generate their own
internal information.
E.x;periences
in this modeli:J.re experiments to discover something
about the true state
of
the world that, once attained, will lead to stable choices. Three
· categqries
of
goods are distinguished:
(1)
goods with easy search characteristics, whose
quality attributes· can be inspected before buying, like nails;
(2)
goods with high search
costs which lead the buyer to
experience
the good in order to determip.e the quality, like
movies
and
wine;
(3)
goods whose effects depend on
credence
even after the experience,
like health services and spiritual services (Benz, 2006; Darbi and Karni;
1973).
Nelson (1974) pointed to a.particular branch
of
services that provides acl.ditional infor-
mation
to
uninformed buyers, namely advertising.
In
the case
of
goods with experience
qualities, advertising can only state and repeat the
daim,
-any
further information about
the good must be_gathered by the consumer. But there are other sources
of
additional
information,
and
the
issu!;{
widens
to
a new look
at
transaction behaviour:
'How
are
additional information sources like a signal or a third opinion introduced in the actors'
'decision problem?' asks Benz (2006,
p.l),
Bergemann and Viilimaki
(2006)
not only.dis-
tinguish between 'informed' and 'uninformed' buyers; they also attribute 'sophistication'
to
the search process; . · · ·
The demand curve in the part
of
the population that has already learned its preferences
is
similar to the standard textbook case. Those buyers who are uncertain
~bout
the true qu\llity ·
of
the product behave in a more sophisticated manner: Each purchase incorporates an element
of information acquisition·that_is relevant for future
deCisions.
The value
of
this information
is
endogenously determined
inthe
market.. (Ibid.,
p.
3)
· ·
211
212
A handbook
of
cultural
economics
. The recognition
of
search sophistication links the literature
to
earlier models that
i~t~:
.
grated the 'consumption skills'
of
buyers. Scitovsky
(1976)
distinguished between goods
that evoke coinfort and goods that evoke a sensation ofnovelty and discovery.
The.
novel
experiences have 'beneficial accompanying effects' for the entire
econ<Jmy.
Becker and
Stigier (1977) interpreted knowledge and competence in consuming cultural experiences
as
a capital asset: consumers invest in such capital in order to develop the 'taste' that
allows them to choose the most effective experiences
(see
Hutter and Shusterman,
2006)
.
. Very recent contributions demonstrate that experience characteristics are applicable
in a wide product spectrum, ranging from the selection
of
automobiles.(Paredes, 2006)
to online-dating experiences (Frost eta!., 2008).
In
these more recent contributions, the
distinction between experiences
as
experiments and ¢xperiences
as
goals in themselves
. becomes blurred. . · .
Experience
as
an
e9d
in
itself
During the 1990s, yxperiences began to. attract ecopomists' attention for their own
contribution to aggregate production. Business scholars suggested that experiences
accompany every c()nsumption act, and
that
the provision
of
pure experiences consti- .
tutes a profitable new business field. Pine and Gilniore (1999) distinguish fqur 'realms',
namely entertaining, educational, aesthetic and escapist experience goods. They focus on
instructing the reader how
to
set up or improve commercial performances that
ge11erate
more valuable experiences; rather than exploring the wider implications
of
the phenom-
enon. A similar interest in instructing entrepreneurs how to produce the most effective
experience goods. motivates Boswijk
et
a!.
(2007) and Sundbo and .Parmer·
(2008).
Andersson and Andersson (2006,
p.
83)
focus on product c.haracteristics: they emphasize
the intangiblity, inseparability, heterogeneity and perishability
of
experience goods ..
The wider implications
of
distinct experience goods emerged in the context
of
a policy-
'driven ·debate on expanding the notion
of
the 'cultural sector' to a 'creative sector'.
Particularly in the UK,
it
was claimed that branches
of
industry
that
produce goods arid
services with a high degree
of
novelty show above-average growth rates, and that they
lead to a higher rate
of
product change in many other branches (Smith,
1998).
Such posi-
tive externalities are arguments for public support. Tlw arguments are strengthened
by
technological properties. Experience goods frequently consist
of
information symbols
stored
on
some carrier medium, like paper
or
computer
file.
Bec.ause
of
the public-good
properties
of
information, there are low marginal costs
of
technical reproduction and
~
high economies .of scale in efficient distribution.1 .In
1998,
the
UK's
newly founded
Department
of
Culture., Media· and Sports published a
Creative
Industries
Mapping
Docum(!nt
that
identifies
11
branches
as
parts
of
a sector named 'creative itidustries'. The
common feature
is
the 'creative act'' which generates products with new content and ,
new features.
An
enhanced version
of
the DCMS definition, which has found worldwide
attention and triggered policy decision's in many countries, was suggested
by
UNCTAD ·
· (2008) in a report
that
explored the growth
of
exports and imports in creative industries
products. Accordirig to this definition, the sector combines four subsectors, namely her- .
itage, arts, media and creative services, which include design, fashion, advertising and
architectural services.
The. approach
of
identifying a common feature
it).
the
production
of
creative indus-
tries products,
n,amely
the
'cr~ative
act'
of
the
au~hor-producer?
has its counterpart in
,_
1.
I
I
,.
r.
i
i
I
..
I
i
I ·
..
Experience
gooqs
213
identifying a corresponding feature on the consumption side, namely the 'experience'
of
the,consumer-user (Power, 2009). Such
an
approach
is
more in line with neoclassi-.
cal theory which considers the preferences
of
buyers to be the driving force
of
economic
value creation.
it
is
most intensely discussed
and.
tested in the Northern European
.countries. According to
Bille
and -Lorenzen (2008), the appro?-ch was triggered by Pine
and Gilmore's 'discovery'
of
experiences as value creations in their own right.2 The
notion
of
experience applies to the set
of
indu13trial
branches identified by the
DCMS
or
the
UNCT
AD
report, but it also applies to branches for touristic experiences and
for experiences in.watching .and participating
in:
sports
a.nd
game&.
Bille
and Lorenzen
(2008) suggest
that
the experience economy creates value in (l)bra:nches that have expe-
rience as the primary goal
and.
where artistic creativity
is
essential to its production
as
in
theatre, music, visual arts; literature,
film,
qomputer
ga:ines
(creative
experience
areas),.
(2) ·branches
that
have experience
as
the primary goal, but where artistic creativity
is
not
essential, as in museums, libraries, cultural heritage sites, natural and green areas,
restaurants,
the
pornography industry, spectator sports
(experience
areas),
and
(3)
areas . ·
where artistic creativity
is
essential but which do
not
have experience
as
a primary goal,·
as in design, architecture and advertising
(cr(!ative
areas)
(see
Bille,
2009).
The sector
indud.es legal
as
well as illegal 'services; it includes pure information goods, like books,
as well as all kinds
of
combinations with physical impact, froni pornography to hiking
tours. Bille and Lorenzen (2008) criticize the notion
of
experience goods because
of
its
po-tential pervasiveness and immeasurability: just
al)ou:t
every good consumed has some
exp~rience
content. This critique corresponds to the charge
that
'creative acts' are
part
of
.
the most humdrum production processes. The indeterminacy can be reduced by apply-
ingboth
criteria
at
the same time: experience goods are mainly demanded
for
their direct ·
mental effects on the user, rather
than
their instrumental effects, and the value added
in.
their production lies mainly
in
the creativity
qf
their authors, irrespective
of
the media
used up in the process.
The
search
for
experience
goods
, .
The shift toward goods that contain experiences in their own right brings renewed atten-
tion to the consumer's search phase. Experience goods, in order to remain attractive, are
continuously changed. Novels, music pieces or
TV
shows are varied on a yearly, monthly
or
even daily basis in order to appear at the same time-ramiliar and mildly surprising to
their prospective buyers.3
In
consequence, it
is
not.enough to try out the good once in
order to appreciate
·its
properties because the next movie, song or news item consumed
will
be different, even if it uses 'the same media fbrmat.
Under' such conditions, the difficulty consists
in
finding out something about a good
thatcannot
be consumed on an experimental basis because to experience it once would
exhaust
total
consumption. The producers, therefore, will provide signals
ab~ut
:the
·qualities
of
new detective stories, video games
and
music albums without enabling the
interested consumer·to actually enjoy the desired experience.
The
metho~
for doing so
operate ori three levels:
(1)
advertising messages.make claims
aboufthe
features ofriovel
experience goods;
(2)
the consumer gets limited access to the good, constrained by trial
periods, by providing excerpts
of
the experience,
or
simplified demonstration versions.
Such experimental experiences seem to be
an
effective tool. They are increasingly offered
since digital technology permits a sophisticated management
of
such limited access
214
A
hrmdbook
of
cultural
economics
rights; (3) publicly stated preferences, based
on
reput.ation, are used as predictors for
one's own experience.4 The reputation
of
'experts' is gained in institutions
that
specialize.
in quality comparisons between very specific types
of
experience goods, be they opera
performances, hiking tours
or
sculptures. .
The generation
of
expert networks
is
enforced by the growth
of
creative industries
branches (see Potts
et
al.·,
2008). One
of
the subsectors
of
the creative industries, the
mass media, provides opinions
that
a;re
perceived as independent
of
producers: media
corq.panies, mainly· newspapers
and
TV
.networks, employ experts to make their judge-
ments
about
a particular novel product known. They also report on public recognitions
of
quality, like
the
awarding
of
prizes
or
the success
of
events
and
tours.
From
the multi-
plicity
of
messages, weighed with the degree
of
reputation
attributedto
the sender
of
the
message, consumers derive the information
that
then prompts them to spend a p.ortion
of
their disposable income
on
experiences
that
are new to them.
.
In
addition, there
is
a benefit
that
draws
not
only
on
numbers,
but
on
mutual exchange.
of.signals: everyone who has. already seen a new movie
or
played a new game can also
talk
about
it,
and
rate their own experience.
The
well-known impact
of
'word-of-mouth'
signals stems from such re9iprocal interaction between past
and
potential users within
differeqtiated peer groups
and
may lead to 'social contagion'
..
5 As the user offers infor:
mation
to
prospective users, s/he generates future credit if the actual experience
is
rated ·
positively,
or
is
discounted
if
the experience was disappointing. This effect
is
multiplied
in the quality 'signals
of
external experts: their judgements
add
to the enjoyment
of
an
experience. The total utility for the consumer increases.
Conclusions
,
Experiences, first introduced as a limited extension
of
the standard rational choice
model, appear to be destined for a larger role.
In
contemporary information-intensive
economies, 'experience industries' constitute
an
economic subsector in its own right.
Experience goods; interpreted as products that. contain regularly varied information
inducing new mental experiences in their users, pose interesting theoretical challenges.
Information·
is
needed to enable informed
choice.s
by future consumers, and.such infor-
mation draws its effectiveness from consistent value rankings within networks
of
experts,·
which are perceived as independent
of
commercial interests.
The
expert valuations gain a
marketable value in themselves as they are experienced by the cons.umers
and
their com-
. munication networks. Both notions, scales
of
quality and networks
of
communication,
pose·new challenges to economic theory. · · ·
Notes ·
1.
See
Hutter (2003)
on
the characteristics
of
'information goods'.
2.
A short English version
is
provided in Bille (2009). . . .
3.
The relevance
of
surprise is already noted in Pine and Gilmore (1999).
See
also Hutter (2011).
4.
Andersson
and
Andersson (2006, p.
108)
see the reputation
of
'professional certi:fiers''as ,nost relevant for
reducing consumers' expectation uncertainty. . . . . . . ·
·
5.
See
Kretschmer
et
al.
(1999). Empirical evidence for the effect
of
word
of
mouth is presented in
DeVany
~~
. .
See
also:
Chapter
9:
Awards; Chapter
16:
Creative economy; Chapter
19:
Criticism;
. Experience
goods
215
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G.
arid
G.
Stigler (1977),.'De Gustibus Non Est disputandum', American
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· .
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·D.
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(2006),
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of
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(4),
713-43. · · ,
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T.
(2009),
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the
Experience Economy', Copenhagen: Creative .Encounters
Working Papers. . . . . · ·
Bille,
T.
and
M.
Lorenzen
(2008),
Den
danske
oplevelsesfJkonomi,
Frederiksburg: Samfundslitteratur.
Boswijk,
A.,
T. Thijssen
et
al.
(2007),
The
Experience Economy- A
New
Perspective,
Amsterdam:
European:
Centre for the
Exp'erience
Economy. · ·
Darbi, M.R. and
E.
Karni
(1973),
'Free Competition and
the
Optimal Amount
of
Fraud',
Journal
of
Law
and
Economics,
16,
67-68. ·
DCMS
(1998),
Creative
Industrz'es
Mapp1~g
Document,
London, Department
of
Culture, Media and Spprts.
D~t
Vany,
A.
(2004),
Hollywood
Economics.
How
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the
Film
Industry,
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·'Routledge. ·
Frost,
J..,
Z.
Chance et
al.
(2008),
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of
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22
(1),
51-61. · ·
Hutter,
M.
(2003),
'Information Goods',
in
Ruth Towse (
ed)
A Handbook
of
Cultural
Economics,
Cheltenham,
UK
and Northampton, MA,
USA:
Edward Elgar, pp. 263-8.
Hutter,
M.
(2011),
'Infinite Surprises. Value in the Creative Industries',
in
P.
Aspers and
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The
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M.
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R.
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P.
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of
Political
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82
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· ·
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(2006),
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J.,
S.
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D.
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arid
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et
al.
(2007),
Power
(2009)
and Scitovsky
(1976).
' '
A Handbool( of·Cultural
Economics, Second Edition
Edited by
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Towse
Professor
of
Econmnics
of
Creative Industries, CIP PM, Bournemouth
University,
UK
and Professor
Em.erita,
Erasmus
Ui1iversity
RoHerdam,
-
The
Netherlands · · ·
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Cheltenham,
UK
Northampton, MA, USA
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Just how risky is the movie industry? Is screenwriter William Goldman's claim that "nobody knows anything" really true? Can a star and a big opening change a movie's risks and return? Do studio executives really earn their huge paychecks? These and many other questions are answered in Hollywood Economics. The book uses powerful analytical models to uncover the wild uncertainty that shapes the industry. The centerpiece of the analysis is the unpredictable and often chaotic dynamic behaviour of motion picture audiences. This unique and important book will be of interest to students and researchers involved in the economics of movies, industrial economics and business studies. The book will also be a real eye-opener for film writers, movie executives, finance and risk management professionals as well as more general movie fans.
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Presents a theoretical discussion of the puzzling relation, or lack of it, between income and happiness. Where the economist sees satisfaction as the supplying of consumer needs, the psychologists recognizes a wider and more complex system of need. These theoretical considerations are discussed as they apply in detail to the American scene. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
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A formal definition of cultural industries is developed following four distinct features of cultural goods: (a) oversupply, (b) quality uncertainty, (c) network effects and (d) demand reversal. Drawing on economic and socio-psychological notions of ‘network’, increasing returns and social contagion effects are distinguished. Increasing returns may govern the adoption of standards when choices are binary, social contagion explains the diffusion of cultural goods when choices are multiple. Together, the four structural features delineating cultural industries account for curious competitive dynamics prevalent in cultural markets, such as the notorious 10 : 90 proportionality (under which 10% of cultural goods account for 90% of the market), causal ambiguity about the reasons for success, and the formation of fashions. Six managerial recommendations are advanced, focusing on a criticial circulation point triggering self-sustaining diffusion patterns. Finally ‘project-based enterprises’ and ‘network forms of governance’ are identified as the organizational forms most suited to the dynamics of the cultural markets.
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We suggest that online dating frequently fails to meet user expectations-because people, unlike many commodities available for purchase online, are experience goods: Daters wish to screen potential romantic partners by experiential attributes (such as sense of humor or rapport), but online dating Web sites force them to screen by searchable attributes (such as income or religion). We demonstrate that people spend too much time searching for options online for too little payoff in offline dates (Study 1), in part because users desire information about experiential attributes, but online dating Web sites contain primarily searchable attributes (Study 2). Finally, we introduce and beta test the Virtual Date, offering potential dating partners the opportunity to acquire experiential information by exploring a virtual environment in interactions analogous to real first dates (such as going to a museum), an online intervention that led to greater liking after offline meetings (Study 3).