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Signals sell: Designing a product line when consumers have social image concerns
[working paper]
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Wissenschaftszentrum Berlin für Sozialforschung gGmbH
Abstract One important function of consumption is for consumers to show off their taste, virtue or wealth. While empirical observations suggest that producers take this into account, existing research has concentrated on analyzing the demand side. This paper investigates how a monopolist optimally designs it... view more
One important function of consumption is for consumers to show off their taste, virtue or wealth. While empirical observations suggest that producers take this into account, existing research has concentrated on analyzing the demand side. This paper investigates how a monopolist optimally designs its product line when consumers differ both in their taste for quality and their desire for a positive social image. The monopolist distorts qualities and prices to allocate images to consumers. It generically pools consumers with different tastes because high-taste consumers lend a positive image to the product of their choice and thereby increase the product's value to others. Often, average quality is lower than in a market without image concerns and there is underprovision as compared to the welfare-maximizing allocation. Although average quality is higher in a competitive market, welfare typically is not.... view less
Keywords
consumption
Classification
Sociology of Economics
Free Keywords
conspicuous consumption; image motivation; mechanism design; two-dimensional screening
Document language
English
Publication Year
2016
City
Berlin
Page/Pages
48, B.21 p.
Series
Discussion Papers / Wissenschaftszentrum Berlin für Sozialforschung, Forschungsschwerpunkt Markt und Entscheidung, Abteilung Verhalten auf Märkten, SP II 2016-202
Handle
https://hdl.handle.net/10419/129101
Status
Published Version; reviewed
Licence
Deposit Licence - No Redistribution, No Modifications