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Conspicuous Consumption and Sophisticated Thinking

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  • Wilfred Amaldoss

    ()
    (Department of Marketing, Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • Sanjay Jain

    ()
    (Department of Marketing, Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

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    Abstract

    Consumers 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.

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    File URL: http://dx.doi.org/10.1287/mnsc.1050.0399
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 51 (2005)
    Issue (Month): 10 (October)
    Pages: 1449-1466

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    Handle: RePEc:inm:ormnsc:v:51:y:2005:i:10:p:1449-1466

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    Related research

    Keywords: strategic thinking; experimental economics; game theory; rational expectations; conspicuous consumption; learning in games;

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    Cited by:
    1. 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.
    2. Clinton Gudmunson & Ivan Beutler, 2012. "Relation of Parental Caring to Conspicuous Consumption Attitudes in Adolescents," Journal of Family and Economic Issues, Springer, vol. 33(4), pages 389-399, December.
    3. Verena Huettl & Heribert Gierl, 2012. "Visual art in advertising: The effects of utilitarian vs. hedonic product positioning and price information," Marketing Letters, Springer, vol. 23(3), pages 893-904, September.
    4. Avi Goldfarb & Teck-Hua Ho & Wilfred Amaldoss & Alexander Brown & Yan Chen & Tony Cui & Alberto Galasso & Tanjim Hossain & Ming Hsu & Noah Lim & Mo Xiao & Botao Yang, 2012. "Behavioral models of managerial decision-making," Marketing Letters, Springer, vol. 23(2), pages 405-421, June.
    5. 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.
    6. 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.
    7. Nick Vikander, 2014. "Sellouts, Beliefs, and Bandwagon Behavior," Discussion Papers 14-15, University of Copenhagen. Department of Economics.
    8. Kovács, Kármen, 2011. "Az egyszerre érvényesülő társadalmi externáliák hatásai a státusjavak keresletére
      [The effects on the demand for status goods exerted by single-occasion social externals]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 314-332.
    9. Yael Steinhart & David Mazursky & Michael Kamins, 2013. "The process by which product availability triggers purchase," Marketing Letters, Springer, vol. 24(3), pages 217-228, September.
    10. 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.

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