Mimetic Dominance and the Economics of Exclusion: Private Goods in Public Context

Alex Imas () and Kristóf Madarász ()
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Alex Imas: Booth School of Business
Kristóf Madarász: London School of Economics

No 2021-001, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: We propose that a person's valuation from consuming an object or possessing an attribute is increasing in others' unmet excess desire for it. Such mimetic dominance-seeking helps explain a host of market anomalies and generates novel predictions in a variety of domains. In bilateral exchange, there is a reluctance to trade, and people exhibit a ‘social' endowment effect. The value of consuming a good increases in its scarcity, which generates a motive for exclusion. Randomly excluding potential consumers from the opportunity to acquire a product will increase profits for a classic monopolist producing at zero marginal cost and a seller's rents in first-price auctions. We test the predictions of the model empirically. When auctioning a private good, all else equal, randomly excluding people from the opportunity to bid substantially increases bids amongst those who retain this option. Exclusion leads to bigger gains in expected revenue than increasing competition through inclusion. Such effects are absent when those excluded are known to have lower valuations. In basic exchange, a person's willingness to pay for a good increases substantially when others are excluded from the opportunity of buying the same kind of good. Mimetic preferences have implications for both non-price and price based methods of exclusion: the model generates "Veblen effects," rationalizes attitudes against redistribution, immigration, and trade, and provides a novel motive for social stratification and discrimination

Keywords: mimetic preferences; objects of desire; exclusion; Trade; auctions; competition; Inequality (search for similar items in EconPapers)
JEL-codes: D40 D44 D63 F12 L12 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-com, nep-des and nep-mic
Note: MIP
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http://humcap.uchicago.edu/RePEc/hka/wpaper/Imas_M ... e-econ-exclusion.pdf First version, December 16, 2020 (application/pdf)

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