Conspicuous Consumption and Sophisticated Thinking
- 1 October 2005
- journal article
- Published by Institute for Operations Research and the Management Sciences (INFORMS) in Management Science
- Vol. 51 (10), 1449-1466
- https://doi.org/10.1287/mnsc.1050.0399
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.Keywords
This publication has 30 references indexed in Scilit:
- Pricing of Conspicuous Goods: A Competitive Analysis of Social EffectsJournal of Marketing Research, 2005
- A Cognitive Hierarchy Model of GamesThe Quarterly Journal of Economics, 2004
- David vs. Goliath: An Analysis of Asymmetric Mixed-Strategy Games and Experimental EvidenceManagement Science, 2002
- Sophisticated Experience-Weighted Attraction Learning and Strategic Teaching in Repeated GamesJournal of Economic Theory, 2002
- Experience-weighted Attraction Learning in Normal Form GamesEconometrica, 1999
- Empirical tests of status consumption: Evidence from women's cosmeticsJournal of Economic Psychology, 1998
- A Theory of ConformityJournal of Political Economy, 1994
- The Social Self: On Being the Same and Different at the Same TimePersonality and Social Psychology Bulletin, 1991
- A Note on Restaurant Pricing and Other Examples of Social Influences on PriceJournal of Political Economy, 1991
- Possessions and the Extended SelfJournal of Consumer Research, 1988