The Effects of Shared Consumption on Product Life Cycles and Advertising Effectiveness: The Case of the Motion Picture Market

Abstract

Consumers frequently consume hedonic products together with other consumers and derive value from this shared experience. This article investigates the impact of shared consumption, a type of social influence that determines the enjoyment of joint experiences, in the context of a typical hedonic product: movies. The authors argue that this type of influence has important consequences for the diffusion curves of hedonic goods that are consumed together and the effectiveness of advertising in generating launch and postlaunch sales. An empirically validated agent-based model simulates the U.S. motion picture market, with new movies launching, competing, and exiting. The agent-based model serves as a means to demonstrate the essential role of shared consumption for explaining movie life cycles and tests how advertising expenditures accelerate and/or acquire movies’ demand in markets with varying levels of shared consumption. The results provide key theoretical insights for the new product diffusion of hedonic products and help managers predict the financial consequences of their strategic decisions.