Collaborative Research Center Transregio 190,
36 S. : Anh.
(Discussion Paper / Rationality & Competition, CRC TRR 190 ; 70)
This paper analyzes optimal product lines when consumers differ both in their taste for, quality and in their desire for social image. The market outcome features partial pooling and, product differentiation that is not driven by heterogeneous valuations for quality but by image, concerns. A typical monopoly outcome is a two-tier product line resembling a “masstige”, strategy as observed in luxury goods markets. Products can have identical quality and differ, only in price and image, thereby rationalizing quality-equivalent line extensions. Under, competition, both average quality and market coverage are (weakly) higher but monopoly, can yield higher welfare than competition.
Keywords: image concern, conspicuous consumption, two-dimensional screening, nonlinear pricing