IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v76y2021icp495-501.html
   My bibliography  Save this article

Revenge consumption, product quality, and welfare

Author

Listed:
  • Nguyen, Xuan
  • Chao, Chi-Chur

Abstract

Revenge consumption, the situation in which the demand for specific goods and services suddenly skyrockets and remains high for an extended period of time, is a relatively new economic phenomenon observed recently in many cities around the world after the easing of restrictions associated with the coronavirus pandemic in 2020 and 2021. We study welfare implications of revenge consumption in a model of vertical product differentiation. We show that revenge consumption induces producing firms to enhance the quality levels and raise prices on their products. As the level of revenge consumption increases, social welfare initially increases but it eventually declines. Results, which hold across monopoly, duopolistic competition, and national brand-private label competition models, provide useful information for public policy.

Suggested Citation

  • Nguyen, Xuan & Chao, Chi-Chur, 2021. "Revenge consumption, product quality, and welfare," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 495-501.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:495-501
    DOI: 10.1016/j.iref.2021.05.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056021001155
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2021.05.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Tsuyoshi Toshimitsu, 2005. "Tariffs, Quality Choice, and Cost Functions: a Foreign Monopoly Case," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 376-384, May.
    2. Das, Satya P. & Donnenfeld, Shabtai, 1989. "Oligopolistic competition and international trade : Quantity and quality restrictions," Journal of International Economics, Elsevier, vol. 27(3-4), pages 299-318, November.
    3. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    4. Amitrajeet A. Batabyal & Hamid Beladi, 2019. "Preference matching, income, and population distribution in urban and adjacent rural regions," Papers in Regional Science, Wiley Blackwell, vol. 98(5), pages 2201-2208, October.
    5. Nicolas Boccard & Xavier Wauthy, 2005. "Enforcing Domestic Quality Dominance through Quotas," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 250-261, May.
    6. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(1), pages 3-13.
    7. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    8. Nguyen, Xuan, 2015. "On the efficiency of private and state-owned enterprises in mixed markets," Economic Modelling, Elsevier, vol. 50(C), pages 130-137.
    9. Zhou, Dongsheng & Spencer, Barbara J. & Vertinsky, Ilan, 2002. "Strategic trade policy with endogenous choice of quality and asymmetric costs," Journal of International Economics, Elsevier, vol. 56(1), pages 205-232, January.
    10. Xiaoguang Liu & Yuanchun Liu & Yan Yan, 2020. "China macroeconomic report 2020: China’s macroeconomy is on the rebound under the impact of COVID-19," Economic and Political Studies, Taylor & Francis Journals, vol. 8(4), pages 395-435, October.
    11. Yao, Juan & Ma, Chuanchan & He, William Peng, 2014. "Investor herding behaviour of Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 12-29.
    12. Zheng, Dazhi & Li, Huimin & Chiang, Thomas C., 2017. "Herding within industries: Evidence from Asian stock markets," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 487-509.
    13. Ikeda, Takeshi & Toshimitsu, Tsuyoshi, 2010. "Third-degree price discrimination, quality choice, and welfare," Economics Letters, Elsevier, vol. 106(1), pages 54-56, January.
    14. Mills, David E, 1995. "Why Retailers Sell Private Labels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 509-528, Fall.
    15. Sgroi, Daniel, 2002. "Optimizing Information in the Herd: Guinea Pigs, Profits, and Welfare," Games and Economic Behavior, Elsevier, vol. 39(1), pages 137-166, April.
    16. Waldman, Michael, 1996. "Durable Goods Pricing When Quality Matters," The Journal of Business, University of Chicago Press, vol. 69(4), pages 489-510, October.
    17. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
    18. Nguyen, Xuan, 2014. "Monopolistic third-degree price discrimination under vertical product differentiation," Economics Letters, Elsevier, vol. 125(2), pages 153-155.
    19. Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-748, September.
    20. Gabrielsen, Tommy Staahl & Sorgard, Lars, 2007. "Private labels, price rivalry, and public policy," European Economic Review, Elsevier, vol. 51(2), pages 403-424, February.
    21. Clerides, Sofronis & Hadjiyiannis, Costas, 2008. "Quality standards for used durables: An indirect subsidy?," Journal of International Economics, Elsevier, vol. 75(2), pages 268-282, July.
    22. Vives, Xavier, 1997. "Learning from Others: A Welfare Analysis," Games and Economic Behavior, Elsevier, vol. 20(2), pages 177-200, August.
    23. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 797-817.
    24. Waldman, Michael, 1997. "Eliminating the Market for Secondhand Goods: An Alternative Explanation for Leasing," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 61-92, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Haozhe Shi & Ziming Jiao, 2023. "The Research on the Relationship between Consumption Downturn and COVID-19—Analysis of Survey Data from China," International Journal of Business and Management, Canadian Center of Science and Education, vol. 17(12), pages 1-90, February.
    2. Liu, Yanfeng & Li, Xue & Yuen, Kum Fai, 2023. "Revenge buying: The role of negative emotions caused by lockdowns," Journal of Retailing and Consumer Services, Elsevier, vol. 75(C).
    3. Ji Sun & Qiang Gong & Leonard F. S. Wang, 2022. "Revenge consumption, government‐led voucher, and social welfare," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2570-2577, September.
    4. Kim, Sanghee & Chang, Hyo Jung (Julie), 2023. "Mechanism of retail therapy during stressful life events: The psychological compensation of revenge consumption toward luxury brands," Journal of Retailing and Consumer Services, Elsevier, vol. 75(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Morita, Hodaka & Nguyen, Xuan, 2021. "FDI and quality-enhancing technology spillovers," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    2. Hodaka Morita & Xuan Nguyen, 2012. "FDI and Technology Spillovers under Vertical Product Di erentiation," Discussion Papers 2012-19, School of Economics, The University of New South Wales.
    3. Xuan Nguyen & Chi†Chur Chao & Pasquale Sgro & Munirul Nabin, 2017. "Cross†border Travellers and Parallel Trade: Implications for Asian Economies," The World Economy, Wiley Blackwell, vol. 40(8), pages 1531-1546, August.
    4. Puput Tri Komalasari & Marwan Asri & Bernardinus M. Purwanto & Bowo Setiyono, 2022. "Herding behaviour in the capital market: What do we know and what is next?," Management Review Quarterly, Springer, vol. 72(3), pages 745-787, September.
    5. Derek Eaton, 2013. "Innovation and IPRs in the Agricultural Seed Sector," CIES Research Paper series 19-2013, Centre for International Environmental Studies, The Graduate Institute.
    6. Nguyen, Xuan & Sgro, Pasquale & Nabin, Munirul, 2014. "Licensing under vertical product differentiation: Price vs. quantity competition," Economic Modelling, Elsevier, vol. 36(C), pages 600-606.
    7. Eaton, Derek, 2015. "Innovation and IPRs for Agricultural Crop Varieties as Intermediate Goods," 2015 Conference, August 9-14, 2015, Milan, Italy 211581, International Association of Agricultural Economists.
    8. Xuan Nguyen & Pasquale Sgro & Munirul Nabin, 2017. "Optimal Licensing Policy under Vertical Product Differentiation," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 497-510, August.
    9. Chang, Chia-Lin & McAleer, Michael & Wang, Yu-Ann, 2020. "Herding behaviour in energy stock markets during the Global Financial Crisis, SARS, and ongoing COVID-19," Renewable and Sustainable Energy Reviews, Elsevier, vol. 134(C).
    10. José Luis Moraga Gonzales & Jean-Marie Viaene, 2001. "Procompetitive Trade Policies," CESifo Working Paper Series 597, CESifo.
    11. Eaton, Derek, 2014. "A model of IPRs in the international supply chain of seeds and agricultural production," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182643, European Association of Agricultural Economists.
    12. Olivier Bonroy, 2006. "Le standard de qualité minimale est-il un instrument socialement optimal ?. Une revue de littérature," Revue économique, Presses de Sciences-Po, vol. 57(1), pages 35-53.
    13. Emanuele Bacchiega & Antonio Minniti & Arsen Palestini, 2016. "Quality, distance and trade: A strategic approach," Papers in Regional Science, Wiley Blackwell, vol. 95, pages 165-191, March.
    14. Lutz, Stefan H., 2002. "The Effects of Quotas on Vertical Intra-Industry Trade," ZEW Discussion Papers 02-61, ZEW - Leibniz Centre for European Economic Research.
    15. Arjoon, Vaalmikki & Bhatnagar, Chandra Shekhar & Ramlakhan, Prakash, 2020. "Herding in the Singapore stock Exchange," Journal of Economics and Business, Elsevier, vol. 109(C).
    16. Wang, Xinru & Kim, Maria H. & Suardi, Sandy, 2022. "Herding and China's market-wide circuit breaker," Journal of Banking & Finance, Elsevier, vol. 141(C).
    17. Wang, Hu & Li, Shouwei & Ma, Yuyin, 2021. "Herding in Open-end Funds: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    18. Moraga-Gonzalez, Jose Luis & Viaene, Jean-Marie, 2005. "Trade policy and quality leadership in transition economies," European Economic Review, Elsevier, vol. 49(2), pages 359-385, February.
    19. Julien Berthoumieu & Viola Lamani, 2016. "Vertical Differentiation, Uncertainty, Product R&D and Policy Instruments in a North-South Duopoly," Working Papers hal-01285559, HAL.
    20. Demirer, Rıza & Kutan, Ali M. & Zhang, Huacheng, 2014. "Do ADR investors herd?: Evidence from advanced and emerging markets," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 138-148.

    More about this item

    Keywords

    Product differentiation; Revenge consumption; Welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:495-501. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.