This week in research #121

Here's what caught my eye in research over the past week (a quiet week, as I have been travelling in Europe):

• Three articles published in the prestigious journal Nature by Miske et al., Aczel et al., and Tyner et al., investigate the replicability of research results in social and behavioural sciences (a very important set of papers that have garnered a lot of attention)
• Mišák (open access) investigates the impact of temperature on soccer team performance, and finds that attacking efficiency is enhanced in warmer conditions, leading to increased goal productivity and improved shot conversion rates, defensive performance appears to weaken in warmer conditions, with a decrease in defensive pressure and passing accuracy, and player aggression follows an inverted U-shaped pattern in relation to temperature

The impact of the 2023 Bud Light boycott on alcohol purchases

When a consumer stops buying a particular product for some reason (for example, if a product becomes unavailable), do they switch their spending to another product within the same category, or do they reallocate their spending across all available goods and services? The consumer choice model (or the constrained optimisation model for the consumer) suggests that the consumer should reallocate across all possible goods and services, rather than transferring the exact proportion of spending to the closest substitute product.

This recent article by Aljoscha Janssen (Singapore Management University), published in the journal Economics Letters (ungated earlier version here) provides an interesting test of that expected response. The context is the 2023 boycott of Bud Light in the US:

The boycott began in early April 2023 after Bud Light partnered with a transgender creator, prompting calls from conservative media to avoid the brand... Viral content amplified the message, and the manufacturer responded with advertising that emphasized traditional Americana themes... Sales declines emerged not only in conservative areas but also in regions without strong ideological leanings...

Janssen uses data from the NielsenIQ Consumer Panel from 2021 to 2023, which tracks spending by between 40,000 and 60,000 US households. Janssen drops households that did not buy alcohol, and then categorises the remaining households into three groups based on Bud Light purchases: (1) 'Bud Light households' (that purchased 18 litres of Bud Light in both 2021 and 2022); (2) 'Bud Light-dominant households' (that purchased at least twice as much Bud Light as other beers, in addition to purchasing at least 18 litres of Bud Light in both 2021 and 2022); and (3) 'Non-Bud Light beer households' (that purchased at least 18 litres of light beer in both 2021 and 2022, of which less than one-third was Bud Light). Janssen reports that:

In the full sample there are 34,470 alcohol-purchasing households; 585 qualify as Bud Light households and 439 of those are Bud Light-dominant, while 5130 are non-Bud Light beer households.

Janssen analyses monthly purchase data using a difference-in-differences approach, essentially comparing the difference in purchases between different treatment and control groups before and after the Bud Light boycott in April 2023. In practice, the comparisons show very similar results for the impact on Bud Light purchases, purchases of other beer, and total alcohol purchases. Specifically, Janssen finds that:

Across all designs, treated households reduce Bud Light by roughly 160 ounces per month (34%–37% of their pre-boycott Bud Light volume)...

Households partially replace Bud Light with other beer: other-beer purchases rise by 70–90 ounces per month. The offset is meaningful but incomplete relative to the Bud Light shortfall...

Net of substitution, total ethanol declines by about 3–4 fl-oz per month among treated households, a 5.5–7.5% drop. Converting with 0.6 fl-oz per U.S. standard drink, this equals roughly 5.0–6.7 drinks per month per treated household...I find no significant changes in wine or spirits, indicating that switching is almost entirely within the beer category.

So, the boycott led households on average to purchase less Bud Light (as you might expect from a boycott). They bought a greater quantity of other beer products, but the increase in other beer purchases was less than half the decrease in Bud Light purchases, meaning that consumers substituted to other non-beer products. Consumers also didn't switch entirely to other alcohol products, as total alcohol purchases declined. Instead, some spending appears to have shifted away from alcohol altogether. In other words, consistent with the consumer choice model, when consumers stopped buying (or reduced their purchases of) Bud Light, they reallocated their spending across all goods and services, not just switching their spending to the closest substitute to Bud Light (other beers).

Does this offer anything meaningful for advocates of reduced alcohol consumption? Probably not in any direct sense. These were fairly unusual circumstances, and consumer boycotts of particular alcohol products are uncommon. It is hard to imagine advocates or policymakers being able to engineer similar boycotts on a regular basis in order to reduce alcohol consumption. However, the findings do suggest a broader possibility. Interventions that reduce purchases of particular alcohol products, especially those associated with high levels of alcohol-related harm, may lead to at least some reduction in overall alcohol purchases, rather than consumers simply switching one-for-one to the nearest substitute. That said, this study is about purchases rather than consumption, and more evidence from other types of interventions would be needed before drawing firm policy conclusions.

Taylor Swift, look what you made fans buy

Taylor Swift released 27 versions of her 2025 album The Life of a Showgirl. That sounds excessive, but it offers a nice lesson in economics and pricing strategy, specifically price discrimination.

Price discrimination occurs when a firm charges different prices to different groups of consumers for the same good or service, and where the price differences do not arise from a difference in costs. One form of price discrimination is 'versioning', where the firm offers different versions of a product that each cost the same to produce, but which appeal to different groups of consumers (with different price elasticities of demand). Consumers that are more price sensitive (and have more elastic demand) would buy the version of the product that is less expensive, while consumers that are less price sensitive (and have less elastic demand) would buy the more expensive version.

We saw an extreme example of versioning last year, executed by the astute economist Taylor Swift. Paul Crosbie (Macquarie University) wrote about it in this article in The Conversation last October:

The Life of a Showgirl was released in dozens of formats, with physical and digital editions tailored to different levels of commitment.

In total, over the first week, there were 27 physical editions (18 CDs, eight vinyl LPs and one cassette) and seven digital download variants.

A range of covers, coloured vinyl, bonus tracks and signed inserts turned one album into a collectable series rather than a single product. Other artists – such as the Rolling Stones – have used this strategy before, but rarely at this scale or with such an intense response from fans.

Taylor Swift fans who are more price sensitive will have tended to buy the less expensive version of the album. More price-sensitive fans will include those who have lower incomes (where the album price is a higher proportion of their income) and those who are more casual Taylor Swift fans (where there are more substitutes available that they might prefer to spend their income on).

Taylor Swift fans who are less price sensitive will have tended to buy the more expensive premium version of the album. Less price-sensitive fans will include those who have higher incomes (where the album price is a smaller proportion of their income) and those who are more diehard Taylor Swift fans (where there is no close substitute for the latest Taylor Swift album).

Crosbie questions whether it is possible to have too many versions of a product. In this case, 27 versions do seem like a lot. It could be a very effective means of segmenting the market. However, that works best if each buyer only buys one version. There will be some fans who bought more than one version, and perhaps a substantial number who bought several. A non-trivial proportion of the most diehard fans probably own all 27 physical editions of the album.

This matters because the usual rationale for price discrimination through versioning is that consumers sort themselves across the available versions - the casual fans buy the standard version, while the diehard fans buy the premium one. But if some consumers buy multiple versions, the strategy is doing more than just segmenting the market. It is also encouraging multiple purchases from the same buyer. In that case, the different versions are not just substitutes for one another, but for some fans they become collectibles, with each version they collect adding a bit of extra value through completeness, exclusivity, or identity. So, the economics of versioning for Taylor Swift are not only about price discrimination between consumers, but also about extracting more surplus from the most committed fans.

There is a limit to how many versions even the most diehard fan is willing to buy, and that limit arises because of diminishing marginal utility. In economics, utility is the satisfaction or happiness the consumer gets from the goods and services they consume. Marginal utility is the extra utility the consumer gets from consuming one more unit of a good or service. Diminishing marginal utility is the idea that marginal utility declines as the consumer consumes more of a good. In the context of Taylor Swift's album, Crosbie notes that:

The first version of an album brings a lot of satisfaction. The fifth or sixth brings less. Eventually, another version does not add enough enjoyment to justify the price. Fans begin to feel they have had enough.

It is clear that there is a balance to be found between maximising profits by price discrimination using versioning, and the number of versions that are offered when some consumers will want to buy multiple versions. Price discrimination can be an incredibly profitable pricing strategy for firms, including for Taylor Swift. Maintaining fan engagement and encouraging diehard fans to spend more by making the versions collectible are also important. As Crosbie notes in his article:

Instead of leaving that money on the table, the strategy turns passion into profit. The cost of creating extra covers or vinyl colours is small, but the willingness of fans to pay more for them is high. That is exactly where versioning pays off.

In theory, it should be possible to work out the optimal number of versions that maximises long-run profit. The profit-maximising number of versions is not necessarily the number that best segments the market for the purposes of price discrimination, because diehard fans may buy multiple versions. It seems likely that Taylor Swift is well aware of this. Would you be willing to bet she hasn’t gotten close to that optimum? I wouldn’t.

Facebook Marketplace forces a change in TradeMe's business model, but will it succeed?

TradeMe is one of the key examples that I use when teaching about platform markets in my ECONS101 class. But competition from Facebook Marketplace is causing TradeMe to change its business model, and those changes are risky.

The reason why TradeMe is such a good example is that, by attracting buyers and sellers to its platform in the 1990s, TradeMe managed to keep eBay out of the New Zealand market. How did that happen? In a platform market, the firm (in this case, TradeMe) acts as an intermediary that brings together two parties (in this case, buyers and sellers) who would not otherwise interact or easily connect. Buyers using TradeMe create value for sellers, and the more buyers there are, the more value is created. Sellers using TradeMe creates value for buyers, and the more sellers there are, the more value is created. Once TradeMe was set up and had attracted a large share of buyers and sellers, it would be difficult for any other platform to set up in competition with TradeMe. And so, eBay couldn't get a foothold in New Zealand, and TradeMe had an effective monopoly over online auctions for many years.

TradeMe profited by charging a 'success fee' to sellers of goods on the platform. Buyers faced no fees. This reflects the principle that a platform firm (like TradeMe) should set a lower price for access to the platform to whichever side of the market has demand that is more elastic, ceteris paribus. In this case, buyers have more elastic demand for access to TradeMe, as there are many other places that they might go to buy things. Sellers, on the other hand, had more inelastic demand for access to TradeMe because no other place had access to the same quantity of buyers. That is, until Facebook Marketplace appeared.

Facebook Marketplace doesn't charge fees to sellers. And through its links to Facebook users, there are a large number of potential buyers on Facebook Marketplace. And so, there is now a viable (and cheaper) alternative to TradeMe for sellers. And now, TradeMe has finally reacted to this competition, as reported in the New Zealand Herald last month:

Trade Me is removing success fees for casual sellers, in a move that one marketing expert says is probably a response to the growing power of Facebook Marketplace.

Sellers have usually been paying 7.9% of the final sales price of items sold via Trade Me.

But a new fee structure will remove them from next week and site spokeswoman Lisa Stewart said casual sellers would be better off.

It is making other changes at the same time: bank transfers will not be possible and Ping will be offered on every listing alongside cash and Afterpay, with a 2.19% transaction fee for the seller. This provides buyer protection up to $5000 if trades go wrong.

Buyers will also pay a new service fee based on the purchase price, if items are more than $20. This will be 99c for goods sold for $20.01 to $100, $1.99 for sales between $100.01 and $250 and $4.99 for items over $250. Stewart said 44% of trades were under $20.

It was a response to customer feedback and what was happening in the market, Stewart said...

Massey University marketing expert Bodo Lang said it was likely to be in response from growth in the use of Facebook Marketplace, which offers no protection for buyers but charges no fees.

With Facebook Marketplace available for sellers, seller demand for using TradeMe has become more elastic. While the 'success fees' have been eliminated, TradeMe will still profit from sellers through mandating the use of its payment service Ping. And notice that buyers will also now pay a 'service fee' to TradeMe on successful purchases over $20. TradeMe is now leveraging its market power to derive revenue from a complementary good (payment services) rather than the auctions themselves. This change makes TradeMe's business model resemble that of Facebook Marketplace. Meta derives revenue from Facebook Marketplace though selling advertising (on Facebook Marketplace, but also on Facebook), rather than deriving revenue directly from the sales on Facebook Marketplace.

It remains to be seen whether Trademe's new business model will be successful. I question the wisdom of charging a service fee to buyers. They are still the more elastic side of Trademe's platform market, and they have a cheaper option available in the form of Facebook Marketplace. TradeMe is banking on buyers valuing the protection that TradeMe offers them, which Facebook Marketplace does not. However, it isn't clear how much buyers value that protection, and if they don't value it in excess of the new service fee, then they will continue to exit to Facebook Marketplace. And if buyers show an increasing preference for Facebook Marketplace, it won't be long before sellers start to reduce their listings on TradeMe. And if that happens, the market could tip and TradeMe could very quickly find itself in an irreversible decline.