Alan T. Sorensen

Equilibrium Price Dispersion in Retail Markets for Prescription Drugs

This study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs. Posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market, even after one controls for variation due to pharmacy differences. Pharmacy heterogeneity accounts for at most one‐third of the observed price dispersion. The empirical analysis hinges on the observation that consumers’ incentives to price‐shop depend on characteristics of the drug therapy. Cross‐sectional patterns in price distributions across drugs are consistent with the predictions of a search model: prices for repeatedly purchased prescriptions (for which the expected benefits of search are highest) exhibit significant reductions in both dispersion and price‐cost margins.

Positive Effects of Negative Publicity: When Negative Reviews Increase Sales

Can negative information about a product increase sales, and if so, when? Although popular wisdom suggests that “any publicity is good publicity,” prior research has demonstrated only downsides to negative press. Negative reviews or word of mouth, for example, have been found to hurt product evaluation and sales. Using a combination of econometric analysis and experimental methods, we unify these perspectives to delineate contexts under which negative publicity about a product will have positive versus negative effects. Specifically, we argue that negative publicity can increase purchase likelihood and sales by increasing product awareness. Consequently, negative publicity should have differential effects on established versus unknown products. Three studies support this perspective. Whereas a negative review in the New York Times hurt sales of books by well-known authors, for example, it increased sales of books that had lower prior awareness. The studies further underscore the importance of a gap between publicity and purchase occasion and the mediating role of increased awareness in these effects.

Bestseller Lists and Product Variety

This paper uses detailed weekly data on sales of hardcover fiction books to evaluate the impact of the New York Times bestseller list on sales and product variety. In order to circumvent the obvious problem of simultaneity of sales and bestseller status, the analysis exploits time lags and accidental omissions in the construction of the list. The empirical results indicate that appearing on the list leads to a modest increase in sales for the average book, and that the effect is more dramatic for bestsellers by debut authors. The paper discusses how the additional concentration of demand on top-selling books could lead to a reduction in the privately optimal number of books to publish. However, the data suggest the opposite is true: the market expansion effect of bestseller lists appears to dominate any business stealing from non-bestselling titles.

Information and the Skewness of Music Sales

This paper studies the role of product discovery in the demand for recorded music. We show that releasing a new album causes a substantial and permanent increase in sales of the artists old albums—especially if the new release is a hit. Patterns in these “backward spillovers” suggest that they result from consumers discovering the artist upon hearing the new release. To explore the implications of consumers’ incomplete information, we estimate a simple, learning‐based model of market demand. Our results imply that the distribution of sales is substantially more skewed than it would be if consumers were more fully informed.

Bestseller Lists and Product Variety: The Case of Book Sales

This paper uses detailed weekly data on sales of hardcover fiction books to evaluate the impact of the New York Times bestseller list on sales and product variety. In order to circumvent the obvious problem of simultaneity of sales and bestseller status, the analysis exploits time lags and accidental omissions in the construction of the list. The empirical results indicate that appearing on the list leads to a modest increase in sales for the average book, and that the effect is more dramatic for bestsellers by debut authors. The paper discusses how the additional concentration of demand on top-selling books could lead to a reduction in the privately optimal number of books to publish. However, the data suggest the opposite is true: the market expansion effect of bestseller lists appears to dominate any business stealing from non-bestselling titles.

Common “Wisdom” Put to the Test: Bad News Can be Good News … Sometimes

Abstract Can negative information about a product increase sales, and if so, when? Although popular wisdom suggests that “any publicity is good publicity”, prior research has only revealed downsides to negative press. Negative reviews or word-of-mouth, for example, have been found to harm product evaluations and sales. This research flashlight (page 50) considers this matter from a fresh perspective. The authors examine contexts in which negative publicity about a product will have positive or negative effects.