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.strategic thinking, experimental economics, game theory, rational expectations, conspicuous consumption, learning in games

Social needs play an important role in the purchase of conspicuous goods. In this article, the authors extend traditional economic models to accommodate social needs, such as desire for uniqueness and conformism, and examine their implications for pricing conspicuous goods. First, in the context of a duopoly, the authors identify the conditions under which the desire for uniqueness can increase demand among some consumers as the price of a product increases. Second, the authors show that though the desire for uniqueness leads to higher prices and firm profits, a desire for conformity leads to lower prices and profits. Third, the authors find that consumers purchase high-quality products not because of their desire for uniqueness but despite it. Finally, marketers of conspicuous goods may find it beneficial not to emphasize the functional differences among their products when the need for uniqueness is high. In a laboratory test, the authors find support for the claim that demand for a product among consumers who desire uniqueness may increase as its price increases.

R eference groups influence product and brand evaluations, especially when the product is a publicly consumed luxury good. Marketers of such luxury goods need to carefully balance two important social forces:(1) the desire of leaders to distinguish themselves from followers and (2) the countervailing desire of followers to assimilate with leaders. In this paper, we examine the theoretical implications of these social forces for firm prices, product design, and target consumer selection. We show that the presence of reference group effects can motivate firms to add costly features, which provide limited or no functional benefit to consumers. Furthermore, reference group effects can induce product proliferation on one hand and motivate firms to offer limited editions on the other hand. We find that offering a limited edition can increase sales and profits. In some cases, reference group effects can even lead to a buying frenzy.

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Branding decisions are critical for the success of new products. Prior research on branding and brand extension has primarily focused on how branding influences consumers’ perceptions of product quality. However, consumers of conspicuous goods care not only about product quality but also about the profile of its users. For example, high-end consumers prefer an exclusive brand. On the other hand, low-end consumers may find a brand more attractive if high-end consumers use it. In this paper, we analyze how social effects and market structure can influence the branding of conspicuous goods. Consistent with intuition, our theoretical analysis shows that a monopolist would prefer not to use umbrella branding when consumers’ desire for uniqueness is high. By contrast, in a competitive market, umbrella branding is more profitable than individual branding when consumers have a high level of desire for uniqueness. We also identify conditions in which it is optimal for marketers of conspicuous goods to adopt either an individual branding strategy or asymmetric branding strategies. Furthermore, competing firms may offer umbrella branding even when both firms may be better off if they could commit to using individual branding. Finally, we extend the model to consider a market where consumers’ product preference is not related to social status. Again, if consumers are sufficiently snobbish, competing firms earn more profits by adopting an umbrella branding strategy instead of an individual branding strategy. This paper was accepted by J. Miguel Villas-Boas, marketing.