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Image concerns and the provision of quality

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  • Friedrichsen, Jana

Abstract

In this paper, I study markets where consumers are heterogeneous with respect to both their concerns for the quality of goods and the image associated with them. Consumers with a taste for quality lend a positive image to the product of their choice and thereby increase the product's value to others. A monopolist restricts the product portfolio and charges price premia to allocate image along with quality. Heterogeneity in image concerns thereby provides a rationale for pooling consumers with differing quality preferences. Although image is correlated with a product's quality in equilibrium, an increase in the value of image may decrease quality provision. In a competitive market, premium prices are unsustainable so that image-concerned consumers buy excessive quality instead. Monopoly may therefore yield higher welfare than competition. Policy options to remedy the efficiency losses are discussed. --

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Behavior with number SP II 2013-211.

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Date of creation: 2013
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Handle: RePEc:zbw:wzbmbh:spii2013211

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Keywords: image motivation; conspicuous consumption; two-dimensional screening; ethical consumption;

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  1. Ireland, Norman J., 1994. "On limiting the market for status signals," Journal of Public Economics, Elsevier, vol. 53(1), pages 91-110, January.
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  8. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June.
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Cited by:
  1. Jana Friedrichsen & Dirk Engelmann, 2013. "Who Cares for Social Image? Interactions between Intrinsic Motivation and Social Image Concerns," CESifo Working Paper Series 4514, CESifo Group Munich.

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