Conspicuous Consumption and Sophisticated Thinking
AbstractConsumers purchase conspicuous goods to satisfy not only material needs but also social needs such as prestige. In an attempt to meet these social needs, producers of conspicuous goods like cars, perfumes, and watches, highlight the exclusivity of their products. In this paper, we propose a monopoly model of conspicuous consumption using the rational expectations framework, and then examine how purchase decisions are affected by the desire for exclusivity and conformity. We show that snobs can have an upward-sloping demand curve but only in the presence of consumers who are (weakly) followers. Laboratory tests lend support for this model prediction and for the rational expectations framework. The experimental results suggest that subjects used some degree of sophisticated thinking to arrive at their first-period decisions. Their behavior in the subsequent trials, however, can be adequately captured by a purely adaptive learning mechanism. We discuss the implications of consumer learning for optimal dynamic pricing policy by a monopolist.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 51 (2005)
Issue (Month): 10 (October)
strategic thinking; experimental economics; game theory; rational expectations; conspicuous consumption; learning in games;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Kastanakis, Minas N. & Balabanis, George, 2012. "Between the mass and the class: Antecedents of the “bandwagon” luxury consumption behavior," Journal of Business Research, Elsevier, vol. 65(10), pages 1399-1407.
- Caulkins, J.P. & Feichtinger, G. & Grass, D. & Hartl, R.F. & Kort, P.M. & Seidl, A., 2011. "Optimal pricing of a conspicuous product during a recession that freezes capital markets," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 163-174, January.
- Stillman, Tyler F. & Fincham, Frank D. & Vohs, Kathleen D. & Lambert, Nathaniel M. & Phillips, Christa A., 2012. "The material and immaterial in conflict: Spirituality reduces conspicuous consumption," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 1-7.
- Dall'Olmo Riley, Francesca & Pina, José M. & Bravo, Rafael, 2013. "Downscale extensions: Consumer evaluation and feedback effects," Journal of Business Research, Elsevier, vol. 66(2), pages 196-206.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If references are entirely missing, you can add them using this form.