Willingness to Pay for Status Signals in Online Luxury Markets

Abstract

W e study consumers' valuation of status signals by estimating their willingness to pay for a luxury item with a quiet vs. a prominent logo. We collected data from two online markets on sales of two luxury handbags that differ principally in the prominence of their logo. We use these data to estimate the premium in consumers' willingness to pay for the handbag with the quiet logo, and to estimate how the condition of the handbag affects that premium. We find consumers are willing to pay a sizeable premium of $161-$174, or 17%-18% of the retail price, for quiet handbags as compared to loud handbags. Furthermore, while consumers' willingness to pay for both types of handbags is less for handbags in worse condition, it diminishes more rapidly with the worsening condition for quiet handbags. Our findings suggest that counter to conventional wisdom, consumers are willing to pay more for quietly marked luxury goods that allow them to signal a more targeted group of peers with similar cultural capital or social connectedness.