An Analysis of the Impact of Social Factors on Purchase Behavior

46 Pages Posted: 5 Dec 2002

See all articles by Wilfred Amaldoss

Wilfred Amaldoss

Duke University - Fuqua School of Business

Sanjay Jain

University of Texas at Dallas

Date Written: 2002

Abstract

Consumers purchase conspicuous goods to satisfy not just material needs but also social needs such as prestige. In an attempt to meet these social needs, marketing managers of conspicuous goods like cars, perfumes, and watches employ several strategies to highlight the exclusivity of their products. These strategies include using exclusive distribution, charging high prices, and limiting production. Further, marketing textbooks suggest that the demand curve for prestige goods could be upward sloping and therefore firms should not set prices which are "too low." In this paper we examine whether the desire for exclusivity can lead to an upward-sloping demand curve. We also investigate how social factors such as the desire for exclusivity and conformity affect prices and firms' profits. To analyze these issues, we develop a model of conspicuous consumption using the rational expectations framework. We consider two different market structures: monopoly and duopoly. Our results shows that the desire for exclusivity can lead to an upward-sloping demand curve when there is a segment of consumers who are (weakly) conformists. The impact of exclusivity and conformity on prices and profits varies with the market structure. Interestingly, an increase in perceived functional differentiation of products consumed by snobs could decrease firms' profits and prices. In the laboratory, we observe an upward sloping demand curve for snobs, in both the monopoly and duopoly setting. We also track consumer's expectations, and find on average that subjects' beliefs are consistent with the observed outcome and the rational expectations equilibrium solution.

Suggested Citation

Amaldoss, Wilfred and Jain, Sanjay, An Analysis of the Impact of Social Factors on Purchase Behavior (2002). Review of Marketing Science Working Paper. Available at SSRN: https://ssrn.com/abstract=357700 or http://dx.doi.org/10.2139/ssrn.357700

Wilfred Amaldoss (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-1894 (Phone)

Sanjay Jain

University of Texas at Dallas ( email )

Jindal School of Management
University of Texas at Dallas
Richardson, TX 75080
United States

HOME PAGE: http://utdallas.edu/~sxj164830/

Register to save articles to
your library

Register

Paper statistics

Downloads
650
rank
38,614
Abstract Views
3,873
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information