Mimetic Dominance and the Economics of Exclusion: Private Goods in Public Context

46 Pages Posted: 5 Aug 2020 Last revised: 4 Jan 2021

See all articles by Alex Imas

Alex Imas

University of Chicago - Booth School of Business

Kristof Madarasz

London School of Economics & Political Science (LSE)

Date Written: December 20, 2020

Abstract

We propose that a person’s valuation from consuming an object or possessing an attribute is increasing in others’ unmet excess desire for it. Such mimetic dominance-seeking helps explain a host of market anomalies and generates novel predictions in a variety of domains. In bilateral exchange, there is a reluctance to trade, and people exhibit a ‘social’ endowment effect. The value of consuming a good increases in its scarcity, which generates a motive for exclusion. Randomly excluding potential consumers from the opportunity to acquire a product will increase profits for a classic monopolist producing at zero marginal cost and a seller’s rents in first-price auctions. We test the predictions of the model empirically. When auctioning a private good, all else equal, randomly excluding people from the opportunity to bid substantially increases bids amongst those who retain this option. Exclusion leads to bigger gains in expected revenue than increasing competition through inclusion. Such effects are absent when those excluded are known to have lower valuations. In basic exchange, a person’s willingness to pay for a good increases substantially when others are excluded from the opportunity of buying the same kind of good. Mimetic preferences have implications for both non-price and price based methods of exclusion: the model generates ‘Veblen effects,’ rationalizes attitudes against redistribution, immigration, and trade, and provides a novel motive for social stratification and discrimination.

Keywords: Mimetic Preferences, Objects of Desire, Exclusion, Trade, Competition, Inequality, Veblen Goods

JEL Classification: D03, D4

Suggested Citation

Imas, Alex and Madarasz, Kristof, Mimetic Dominance and the Economics of Exclusion: Private Goods in Public Context (December 20, 2020). Available at SSRN: https://ssrn.com/abstract=3630697 or http://dx.doi.org/10.2139/ssrn.3630697

Alex Imas

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Kristof Madarasz (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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