A Theory of Minimalist Luxury

Abstract

In this paper, we study theoretically how luxury goods can signal wealth in the presence
of high-quality, low-price counterfeits. We show that when high-quality, low-price counterfeits
exist and are visibly indistinguishable from the authentic products, the classic Veblen thesis
breaks down where the wealthy outspend the rest through conspicuous, excessive consumption
to stand out. Instead, the wealthy may embrace “less is more,” or what we refer to as minimalist
luxury to signal their status. More specifically, the wealthy may purposefully restrain from
consumption of luxury goods, motivated either by market forces or by difference in consumer
preferences, to separate themselves from the mimickers. In other words, “less” is more effective
than “excessive” in signaling wealth. We derive this minimalist luxury equilibrium and explore
managerial implications of the mechanism through which this equilibrium occurs.

Keywords: Luxury Branding, Signaling Games, Emerging Markets, Marketing, Pricing