A Model of the 'It' Products in Fashion

Posted: 13 Nov 2013

See all articles by Dmitri Kuksov

Dmitri Kuksov

University of Texas at Dallas - Naveen Jindal School of Management

Kangkang Wang

University of Alberta

Abstract

One of the characteristics of the fashion marketplace is the unpredictability and apparent randomness of fashion hits. Another one is the information asymmetry among consumers. In this paper, we consider fashion as a means consumers use to signal belonging to a higher social rank and propose an analytical model of fashion hits in the presence of competition and consumers who can coordinate on which product to use. We show that, consistent with the observed market phenomenon, in equilibrium, consumer coordination involves randomization between products chosen, i.e., in randomness of fashion hits. Analyzing optimal consumer choice, we find that whenever low-type consumer demand for a product is positive, a price increase results in a higher probability of high-type consumers choosing this product but lower low-type consumer demand. We also show that although high-type consumers may prefer (higher) prices that would lead to complete separation of the high- and the low-type consumers through product use, in equilibrium, firms always price as to attract positive demand from low-type consumers. The equilibrium price and profits turn out to be nonmonotonic in the low-type consumer valuation of being recognized as belonging to a higher social rank. Equilibrium profits first increase and then decrease in this valuation.

Keywords: game theory, status goods, uncertainty, consumer signalling, price competition

Suggested Citation

Kuksov, Dmitri and Wang, Kangkang, A Model of the 'It' Products in Fashion. Marketing Science, Vol. 32, No. 1, 2013; pp. 51-69; DOI: 10.1287/mksc.1120.0742. Available at SSRN: https://ssrn.com/abstract=2328110

Dmitri Kuksov (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road
Richardson, TX 75080-3021
United States

Kangkang Wang

University of Alberta ( email )

Edmonton, Alberta T6G 2R3
Canada

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