Pricing of Conspicuous Goods: A Competitive Analysis of Social Effects

Abstract

Social needs play an important role in the purchase of conspicuous goods. In this article, the authors extend traditional economic models to accommodate social needs, such as desire for uniqueness and conformism, and examine their implications for pricing conspicuous goods. First, in the context of a duopoly, the authors identify the conditions under which the desire for uniqueness can increase demand among some consumers as the price of a product increases. Second, the authors show that though the desire for uniqueness leads to higher prices and firm profits, a desire for conformity leads to lower prices and profits. Third, the authors find that consumers purchase high-quality products not because of their desire for uniqueness but despite it. Finally, marketers of conspicuous goods may find it beneficial not to emphasize the functional differences among their products when the need for uniqueness is high. In a laboratory test, the authors find support for the claim that demand for a product among consumers who desire uniqueness may increase as its price increases.