The "Veblen" Effect, Targeted Advertising and Consumer Welfare

Lynne Pepall and Joseph Reiff

No 815, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

Abstract: The technology of advertising in the twenty-first century allows for better targeting of consumers and better identification of consumer subgroups in the population. This makes it easier for firms to create in their advertising a desire to belong to the group identified with a product. We explore this kind of advertising in a monopoly model. The firm has an incentive to target this kind of advertising to the most lucrative segment of a particular social grouping and while advertising does create value for the consumer, it leads to an outcome where less output is sold at a higher price in a narrower or more segmented market than in the standard monopoly model. As a result even though consumers value the identification effect they are worse off. This is because the firm uses advertising to exploit a form of price discrimination and appropriate more surplus.

Keywords: Targeted Advertising; Peer Effects; Monopoly (search for similar items in EconPapers)
JEL-codes: L12 M3 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-com, nep-mkt and nep-pke
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Journal Article: The “Veblen” effect, targeted advertising and consumer welfare (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:tuf:tuftec:0815

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