×

zbMATH — the first resource for mathematics

Dress to impress: brands as status symbols. (English) Zbl 1282.91070
Summary: We analyzed the market for indivisible, pure status goods. Firms produce and sell different brands of pure status goods to a population that is willing to signal individual abilities to potential matches in another population. Individual status is determined by the most expensive status good one has. There is a stratified equilibrium with a finite number of brands. Under constant tax rates, a monopoly sells different brands to social classes of equal measure, while in contestable markets, social classes have decreasing measures. Under optimal taxation, contestable markets have progressive tax rates, while a monopoly faces an adequate flat tax rate to all brands. In contrast with extant literature, subsidies may be socially optimal, depending on the parameters, in both market structures.

MSC:
91A80 Applications of game theory
91B42 Consumer behavior, demand theory
PDF BibTeX XML Cite
Full Text: DOI
References:
[1] Bagwell, Laurie S.; Bernheim, Douglas B., Veblen effects in a theory of conspicuous consumption, Amer. Econ. Rev., 86, 3, 349-373, (1996)
[2] Baumol, William J., Contestable markets: an uprising in the theory of industry structure, Amer. Econ. Rev., 72, 1, 1-15, (1982)
[3] Baumol, William J.; Bailey, Elizabeth E.; Willig, Robert, Weak invisible hand theorems on the sustainability of multiproduct natural monopoly, Amer. Econ. Rev., 67, 3, 350-365, (1977)
[4] Baumol, William J.; Panzar, John C.; Willig, Robert, Contestable markets and the theory of industry structure, (1982), Harcourt Brace Jovanovich, Inc. San Diego, CA
[5] Becker, Gary, A theory of marriage: part I, J. Polit. Economy, 81, 4, 813-846, (1973)
[6] Becker, Gary, A theory of marriage: part II, J. Polit. Economy, 82, 2, S11-S26, (1974)
[7] Becker, Gary; Murphy, Kevin; Werning, Ivan, The equilibrium distribution of income and the market for status, J. Polit. Economy, 113, 2, 282-310, (2005)
[8] Board, Simon, Monopolistic group design with peer effects, Theoretical Econ., 4, 1, 89-125, (2009)
[9] Bulow, Jeremy; Levin, Jonathan, Matching and price competition, Amer. Econ. Rev., 96, 3, 652-668, (2006)
[10] Burdett, Ken; Coles, Melvyn G., Marriage and class, Quart. J. Econ., 112, 1, 141-168, (1997) · Zbl 0881.90026
[11] Cole, Harold; Mailath, George J.; Postlewaite, Andrew, Social norms, savings behavior, and growth, J. Polit. Economy, 100, 6, 1092-1125, (1992)
[12] Cole, Harold; Mailath, George J.; Postlewaite, Andrew, Incorporating concern for relative wealth into economic models, Fed. Reserve Bank Minneapolis Quart. Rev., 19, 3, 12-21, (1995)
[13] Damiano, Ettore; Li, Hao, Price discrimination and efficient matching, Econ. Theory, 30, 1, 243-263, (2007) · Zbl 1109.91393
[14] Damiano, Ettore; Li, Hao, Competing matchmaking, J. Europ. Econ. Assoc., 6, 4, 789-818, (2008)
[15] Díaz, Miguel; Rayo, Luís; Sapra, Haresh, Status, market power, and veblen effects, (2008), University of Chicago, Booth Graduate School of Business working paper
[16] Direr, Alexis, Interdependent preferences and aggregate saving, Ann. Econ. Statist., 63-64, 297-308, (2001)
[17] Duesenberry, James S., Income, saving and the theory of consumer behavior, (1949), Harvard University Press Cambridge, MA
[18] Frank, Robert H., The demand for unobservable and other positional goods, Amer. Econ. Rev., 75, 1, 101-116, (1985)
[19] Frank, Robert H., Positional externalities cause large and preventable welfare losses, Amer. Econ. Rev., 95, 2, 137-141, (2005)
[20] Heffetz, Ori; Frank, Robert H., Preferences for status: evidence and economic implications, (Benhabib, Jess; Bisin, Alberto; Jackson, Matthew, Handbook of Social Economics, (2011), Elsevier)
[21] Hopkins, Ed; Kornienko, Tatiana, Running to keep in the same place: consumer choice as a game of status, Amer. Econ. Rev., 94, 4, 1085-1107, (2004)
[22] Hopkins, Ed; Kornienko, Tatiana, Which inequality? the inequality of resources versus the inequality of rewards, (2005), University of Stirling, University of Stirling working paper
[23] Hopkins, Ed; Kornienko, Tatiana, Status, affluence, and inequality: rank-based comparisons in games of status, Games Econ. Behav., 67, 2, 552-568, (2009) · Zbl 1188.91110
[24] Hoppe, Heidrun C.; Moldovanu, Benny; Sela, Aner, The theory of assortative matching based on costly signals, Rev. Econ. Stud., 76, 1, 253-281, (2009) · Zbl 1153.91690
[25] Hosios, Arthur J., On the efficiency of matching and related models of search and unemployment, Rev. Econ. Stud., 57, 2, 279-298, (1990) · Zbl 0691.90010
[26] Ireland, Norman J., On limiting the market for status signals, J. Public Econ., 53, 1, 91-110, (1994)
[27] Ireland, Norman J., Optimal income tax on the presence of status effects, J. Public Econ., 81, 2, 193-212, (2001)
[28] Klemperer, Paul, Markets with consumer switching costs, Quart. J. Econ., 102, 375-394, (1987)
[29] McAfee, Preston R., Coarse matching, Econometrica, 70, 5, 2002-2034, (2002) · Zbl 1141.91565
[30] Okuno-Fujiwara, Masahiro; Postlewaite, Andrew, Social norms and random matching games, Games Econ. Behav., 9, 79-109, (1995) · Zbl 0829.90143
[31] Pesendorfer, Wolfgang, Design innovation and fashion cycles, Amer. Econ. Rev., 85, 4, 771-792, (1995)
[32] Pollack, Robert, Interdependent preferences, Amer. Econ. Rev., 66, 3, 309-320, (1976)
[33] Postlewaite, Andrew, The social basis of interdependent preferences, Europ. Econ. Rev., 42, 3-5, 779-800, (1998)
[34] Rayo, Luís, Monopolistic signal provision, B. E. J. Theoretical Econ., 13, 1, (2013) · Zbl 1277.91024
[35] Rege, Mari, Why do people care about social status?, J. Econ. Behav. Organ., 66, 2, 233-242, (2008)
[36] Robson, Arthur, Status, the distribution of wealth, private and social attitudes to risk, Econometrica, 60, 4, 837-857, (1992) · Zbl 0761.90011
[37] Roth, Alvin E.; Peranson, Elliott, The redesign of the matching market for American physicians: some engineering aspects of economic design, Amer. Econ. Rev., 89, 4, 748-780, (1999)
[38] Shor, Russell, KPMG report predicts growth for the global jewelry industry, Gems. Gemol., 43, 2, 180-181, (2007)
[39] Veblen, Thorstein, The theory of the leisure class, (1899), Dover Publications New York, Repr., 1994
[40] Vickers, Jonathan S.; Renand, Franck, The marketing of luxury goods: an exploratory study - three conceptual dimensions, Marketing Rev., 3, 4, 459-478, (2003)
[41] Vikander, Nick E., Targeted advertising and social status, (2010), Tinbergen Institute, Tinbergen Institute working paper
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.