A MODEL OF FASHIONS AND STATUS

This paper presents a model of fashion cycles based on the idea that i ndividuals purchase fashion goods because their displayed status incre ases with the personal status of other consumers who buy the same good . Fashion cycles occur in the model because demand now is a rising fun ction of future prices: if future prices are high, only rich consumers will buy it in the future and the good will have a higher status valu e in the future and will be more desirable now, even though demand now is a decreasing function of current price. The time inconsistency pro blem is solved by repeated cycles which allows for reputation building . The crucial assumption made is that there is perfect information abo ut the price path of all firms and the average status of the purchaser s of each product. This limits possible profits in fashion markets in competition as imitation of price paths is then possible. (C) 1998 Els evier Science B.V. All rights reserved. JEL classifications: D40, L10.