Conspicuous consumption and dynamic pricing

Raghunath Singh Rao, Richard Schaefer

Research output: Contribution to journalArticlepeer-review

28 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)786-804
Number of pages19
JournalMarketing Science
Volume32
Issue number5
DOIs
StatePublished - 2013
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Marketing

Keywords

  • Conspicuous consumption
  • Durable goods
  • Dynamic pricing
  • Game theory
  • Status

Fingerprint

Dive into the research topics of 'Conspicuous consumption and dynamic pricing'. Together they form a unique fingerprint.

Cite this