Conspicuous Consumption and Dynamic Pricing

Citation
Rao, Raghunath Singh et Schaefer, Richard, Conspicuous Consumption and Dynamic Pricing, Marketing science , 32(5), 2013, pp. 786-804
Journal title
ISSN journal
07322399
Volume
32
Issue
5
Year of publication
2013
Pages
786 - 804
Database
ACNP
SICI code
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.