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The Handmade Effect: A Model of Conscious Shopping in an Industrialised Economy

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  • Jasmin Droege

    (University of Oxford)

Abstract

Although online marketplaces for handmade products persist, little theoretical research has been undertaken to explain why firms choose a handmade strategy. In this paper, I develop a model that can explain the persistence through a handmade effect on the consumer side. I show that when consumers are willing to pay a sufficiently high handmade premium, the firm chooses production by hand over superior machine production. When the firm is part of a duopoly, the existence of consumers who care about the conditions under which a product is manufactured can explain the firms’ specialisation and, thus, the observed co-existence of handmade and machine-made products in the economy. Such specialisation is efficient, and can be robust to collusion. The presence of shoppers who are uncertain about the appropriate behaviour may enable the monopolist to use a handmade strategy to signal a social norm of conscious consumption.

Suggested Citation

  • Jasmin Droege, 2022. "The Handmade Effect: A Model of Conscious Shopping in an Industrialised Economy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(2), pages 263-292, March.
    • Handle: RePEc:kap:revind:v:60:y:2022:i:2:d:10.1007_s11151-021-09844-9
    DOI: 10.1007/s11151-021-09844-9
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    Cited by:

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    2. Xiaoming Fan, 2024. "The coldness of machines vs. the warmth of humans: social exclusion and compensatory consumption of handmade products," Italian Journal of Marketing, Springer, vol. 2024(3), pages 267-285, September.

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    More about this item

    Keywords

    Conscious shopper; Handmade premium; Norm; Production; Signaling; Specialisation;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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