Could 'Less' Be 'More' in Signaling Wealth?

29 Pages Posted: 10 Oct 2018

See all articles by Zhenqi Liu

Zhenqi Liu

University of Pennsylvania

Pinar Yildirim

University of Pennsylvania - The Wharton School

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing

Date Written: September 16, 2018

Abstract

In this paper, we incorporate incomplete information about consumer wealth and presence of high-quality counterfeits to investigate when a consumer may engage in moderate as opposed to excessive or conspicuous consumption to signal his/her wealth. Past literature has shown that when wealth is not observable, the wealthy are motivated to outspend the unwealthy to signal their wealth. We show in a single model, however, that when high-quality counterfeits exist, conspicuous consumption as a signal for wealth may no longer be effective. Instead, the wealthy may purposefully restrain from consumption of luxury goods to separate themselves from the rest and hence less can be more in signaling wealth. Our analysis delimits the conditions under which such loud and quiet equilibria exist. We draw managerial implications for luxury brands under both equilibria.

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

Suggested Citation

Liu, Zhenqi and Yildirim, Pinar and Zhang, Z. John, Could 'Less' Be 'More' in Signaling Wealth? (September 16, 2018). Available at SSRN: https://ssrn.com/abstract=3246729 or http://dx.doi.org/10.2139/ssrn.3246729

Zhenqi Liu

University of Pennsylvania ( email )

Philadelphia, PA
United States

Pinar Yildirim (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing ( email )

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