IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

An Analysis of the Impact of Social Factors on Purchase Behavior

  • Wilfred Amaldoss

    (Duke University)

  • Sanjay Jain

    (Purdue University)

Registered author(s):

    Consumers purchase conspicuous goods to satisfy not just material needs but also social needs such as prestige. In an attempt to meet these social needs, marketing managers of conspicuous goods like cars, perfumes, and watches employ several strategies to highlight the exclusivity of their products. These strategies include using exclusive distribution, charging high prices, and limiting production. Further, marketing textbooks suggest that the demand curve for prestige goods could be upward sloping and therefore firms should not set prices which are ``too low''. In this paper we examine whether the desire for exclusivity can lead to an upward-sloping demand curve. We also investigate how social factors such as the desire for exclusivity and conformity affect prices and firms' profits. To analyze these issues, we develop a model of conspicuous consumption using the rational expectations framework. We consider two different market structures: monopoly and duopoly. Our results shows that the desire for exclusivity can lead to an upward-sloping demand curve when there is a segment of consumers who are (weakly) conformists. The impact of exclusivity and conformity on prices and profits varies with the market structure. Interestingly, an increase in perceived functional differentiation of products consumed by snobs could decrease firms' profits and prices. In the laboratory, we observe an upward sloping demand curve for snobs, in both the monopoly and duopoly setting. We also track consumer's expectations, and find on average that subjects' beliefs are consistent with the observed outcome and the rational expectations equilibrium solution.

    If 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.

    File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1021&context=roms
    Download Restriction: no

    Paper provided by Berkeley Electronic Press in its series Review of Marketing Science Working Papers with number 2-1-1021.

    as
    in new window

    Length:
    Date of creation: 06 Dec 2002
    Date of revision:
    Handle: RePEc:bep:rmswpp:2-1-1021
    Note: oai:bepress:roms-1021
    Contact details of provider: Web page: http://www.bepress.com

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
    2. Bagwell, Laurie Simon & Bernheim, B Douglas, 1996. "Veblen Effects in a Theory of Conspicuous Consumption," American Economic Review, American Economic Association, vol. 86(3), pages 349-73, June.
    3. Schmalensee, Richard, 1976. "An Experimental Study of Expectation Formation," Econometrica, Econometric Society, vol. 44(1), pages 17-41, January.
    4. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
    5. Rapoport, Amnon & Boebel, Richard B., 1992. "Mixed strategies in strictly competitive games: A further test of the minimax hypothesis," Games and Economic Behavior, Elsevier, vol. 4(2), pages 261-283, April.
    6. Barzel, Y. & Suen, W., 1991. "The Demand Curves for Giffen Goods are Downward Sloping," Discussion Papers in Economics at the University of Washington 91-18, Department of Economics at the University of Washington.
    7. Naylor, Robin & Cripps, Martin, 1993. "An economic theory of the open shop trade union," European Economic Review, Elsevier, vol. 37(8), pages 1599-1620, December.
    8. Belk, Russell W, 1988. " Possessions and the Extended Self," Journal of Consumer Research, University of Chicago Press, vol. 15(2), pages 139-68, September.
    9. Kolstad, Charles D & Mathiesen, Lars, 1987. "Necessary and Sufficient Conditions for Uniqueness of a Cournot Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 681-90, October.
    10. Frederic S. Mishkin, 1983. "Are Market Forecasts Rational?," NBER Chapters, in: A Rational Expectations Approach to Macroeconomics: Testing Policy Ineffectiveness and Efficient-Markets Models, pages 59-75 National Bureau of Economic Research, Inc.
    11. Chao, Angela & Schor, Juliet B., 1998. "Empirical tests of status consumption: Evidence from women's cosmetics," Journal of Economic Psychology, Elsevier, vol. 19(1), pages 107-131, February.
    12. Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-51, September.
    13. Richard J. Rosen, 1988. "Research and development with asymmetric firm sizes," Finance and Economics Discussion Series 17, Board of Governors of the Federal Reserve System (U.S.).
    14. Williams, Arlington W, 1987. "The Formation of Price Forecasts in Experimental Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 1-18, February.
    15. Corneo, Giacomo & Jeanne, Olivier, 1997. "Snobs, bandwagons, and the origin of social customs in consumer behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 32(3), pages 333-347, March.
    16. Dierker, Egbert, 1972. "Two Remarks on the Number of Equilibria of an Economy," Econometrica, Econometric Society, vol. 40(5), pages 951-53, September.
    17. Corneo, Giacomo & Jeanne, Olivier, 1997. "Conspicuous consumption, snobbism and conformism," Journal of Public Economics, Elsevier, vol. 66(1), pages 55-71, October.
    18. Drew Fudenberg & Jean Tirole, 1999. "Customer Poaching and Brand Switching," Harvard Institute of Economic Research Working Papers 1871, Harvard - Institute of Economic Research.
    19. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    20. Smith, Vernon L, 1982. "Markets as Economizers of Information: Experimental Examination of the "Hayek Hypothesis"," Economic Inquiry, Western Economic Association International, vol. 20(2), pages 165-79, April.
    21. Gary S. Becker, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," University of Chicago - George G. Stigler Center for Study of Economy and State 67, Chicago - Center for Study of Economy and State.
    22. Reinganum, Jennifer R., . "Innovation and Industry Evolution," Working Papers 426, California Institute of Technology, Division of the Humanities and Social Sciences.
    23. Heiner, Ron, 1974. "A Reformulation of the Law of Demand," Economic Inquiry, Western Economic Association International, vol. 12(4), pages 577-83, December.
    24. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    25. Colin Camerer & Teck-Hua Ho, 1999. "Experience-weighted Attraction Learning in Normal Form Games," Econometrica, Econometric Society, vol. 67(4), pages 827-874, July.
    26. Leiderman, Leonardo, 1980. "Macroeconometric testing of the rational expectations and structural neutrality hypotheses for the United States," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 69-82, January.
    27. Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
    28. Dwyer, Gerald Jr., 1981. "Are expectations of inflation rational? or Is variation of the expected real interest rate unpredictable?," Journal of Monetary Economics, Elsevier, vol. 8(1), pages 59-84.
    29. Surendra Rajiv & Shantanu Dutta & Sanjay K. Dhar, 2002. "Asymmetric Store Positioning and Promotional Advertising Strategies: Theory and Evidence," Marketing Science, INFORMS, vol. 21(1), pages 74-96, October.
    30. Romer, David, 1984. "The Theory of Social Custom: A Modification and Some Extensions," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 717-27, November.
    31. Stanley M. Besen & Joseph Farrell, 1994. "Choosing How to Compete: Strategies and Tactics in Standardization," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 117-131, Spring.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bep:rmswpp:2-1-1021. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.