A Theory of Minimalist Luxury

66 Pages Posted: 10 Oct 2018 Last revised: 3 Dec 2019

See all articles by Zhenqi Jessie Liu

Zhenqi Jessie 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 the presence of high-quality, low-price counterfeits to investigate when a consumer may engage in minimalist, as opposed to excessive, luxury consumption to signal her wealth. Past literature has shown that when wealth is not observable, the wealthy are motivated to outspend the low-types to signal their wealth. We show, however, that when high-quality counterfeits exist and are visibly indistinguishable from the authentic products, excessive 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 mimickers, and hence, consuming fewer items can be more effective a signal for 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

Suggested Citation

Liu, Zhenqi and Yildirim, Pinar and Zhang, Z. John, A Theory of Minimalist Luxury (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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