Consumer Status Signaling, Wealth Inequality and Non-deceptive Counterfeits

46 Pages Posted: 30 Aug 2021 Last revised: 6 Jun 2022

See all articles by Li Chen

Li Chen

Cornell University - Samuel Curtis Johnson Graduate School of Management

Zhen Lian

Cornell University - Samuel Curtis Johnson Graduate School of Management

Shiqing Yao

Monash Business School, Monash University

Date Written: July 18, 2021

Abstract

Problem definition: Consumers often enjoy displaying luxury consumption to signal their private wealth status. The emergence of social media has fueled such desire for status signaling. Meanwhile, the rising of e-commerce has made it easy for consumers to search and purchase cheap non-deceptive counterfeits to send a ``deceptive'' status signal, posing a new challenge to the luxury (status product) industry. Methodology/results: Motivated by these industry dynamics, we consider a market entry deterrence game between an incumbent status product firm (the firm) and a non-deceptive counterfeiter (the counterfeiter) who attempts to enter the market. A salient feature of our model is that the market demand is endogenously determined by a consumer status signaling subgame. Our analysis yields four main insights. First, we show that without counterfeits, the firm is strictly better off from the heightened motive of consumer status signaling; however, such benefit would be neutralized by the potential counterfeiter entry. Second, we find that the presence of counterfeits lowers the firm's profit, but may induce the firm to raise its price. Third, we show that the presence of counterfeits has mixed effects on social welfare; only when the wealth inequality among consumers is moderate, will the social welfare increase. Fourth, we demonstrate that increasing the counterfeiter market entry cost does not necessarily improve social welfare despite that it can help eradicate counterfeiters on the market. Managerial implications: Our analysis shows that status signaling and wealth inequality are the key drivers of the strategic interactions between the firm and the counterfeiter as well as the social welfare outcome. The findings from our analysis offer some initial guidelines to managers of luxury brands and e-commerce platforms in addressing the non-deceptive counterfeit problem.

Keywords: Consumer status signaling, non-deceptive counterfeits, pricing, entry, deterrence, social welfare

JEL Classification: C70, D21, L10,

Suggested Citation

Chen, Li and Lian, Zhen and Yao, Shiqing, Consumer Status Signaling, Wealth Inequality and Non-deceptive Counterfeits (July 18, 2021). Available at SSRN: https://ssrn.com/abstract=3889503 or http://dx.doi.org/10.2139/ssrn.3889503

Li Chen

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Zhen Lian (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Shiqing Yao

Monash Business School, Monash University ( email )

Monash Business School
27 Sir John Monash Drive
Melbourne, Victoria 3145
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
123
Abstract Views
464
rank
319,926
PlumX Metrics