Positional concerns, advertising expenses and their externalities

Since Veblen’s “The Leisure Class†was published in 1899, a considerable amount of literature on conspicuous consumption has been produced; while much has been said from a demand viewpoint, its supply side and social consequences rest largely undetermined. This paper aims at highlighting the highly conflictual interests between firms and the generality of consumers in a market characterized by conspicuous consumption. It also has in view to take a step forward towards the formalization of conspicuous consumption, to accelerate his admittance in the broadly accepted microeconomic theory. Starting from an analysis of the past literature and the state of the art in demand theory, I will first include positional concerns in an individual utility function. I will then examine the adverse economic and socio-psychological externalities that similar behaviors entail. I will eventually turn to the analysis of the supplier’s responsibility in shaping the phenomenon. Through an advertising augmented Lerner index I will investigate the role of a firm’s advertising expense in both raising markups and increasing conspicuous consumption’ negative effects. After an empirical analysis aimed at supporting my thesis, I will finally suggest a few remedies.