The Effect of Social Interaction on Economic Transactions: Evidence from Two Retail Format Changes

Examining two different changes in retail format, we show that consumers alter their purchase behavior when the retail context changes. In both settings, the change in purchasing behavior is consistent with the effect being driven by an interpersonal interaction between the consumer and the retail clerk. We therefore model the change in format as a “social friction” in which consumers may not purchase what they want most because of an implicit cost of purchasing some items in social settings. Taking this model to data in one of our retail settings, we show that reducing social frictions increased consumer surplus by 5.4% and producer surplus by 3.5%. JEL: D12, L81, L86