Conspicuous Consumption and Dynamic Pricing

Raghunath Singh Rao () and Richard Schaefer ()
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Raghunath Singh Rao: McCombs School of Business, University of Texas at Austin, Austin, Texas 78712
Richard Schaefer: McCombs School of Business, University of Texas at Austin, Austin, Texas 78712

Marketing Science, 2013, vol. 32, issue 5, 786-804

Abstract: How do firms develop marketing strategy when consumers seek to satisfy both quality and status-related considerations? We develop an analytical model to study this issue, examining both pricing and product management decisions in markets for conspicuous durable goods. Our analysis yields many interesting and nontrivial insights. First, we demonstrate that high intrinsic quality indirectly generates exclusivity via pricing effects; in turn, this exclusivity generates considerable social payoffs where consumers value status. This insight reverses the direction of causality in the existing literature, wherein only status considerations matter and mere price increases may enhance consumer utility. Second, our dynamic model indicates that where consumers prioritize status benefits, producers incur substantial price depreciation in equilibrium. Third, we examine the product management strategies used by firms to preserve early adopter exclusivity. Finally, we discuss the boundary conditions of our results as well as our results' implications for managerial and policy issues.

Keywords: conspicuous consumption; status; durable goods; game theory; dynamic pricing (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:32:y:2013:i:5:p:786-804

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