Social Pricing in a Distribution Channel under Conspicuous Consumption

Posted: 14 Sep 2021 Last revised: 16 Sep 2021

See all articles by Yuetao Gao

Yuetao Gao

Xiamen University

Shaoxuan Liu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Bo Shen

Wuhan University - School of Economics and Management

Yinliang (Ricky) Tan

University of Houston - C.T. Bauer College of Business

Date Written: September 16, 2021

Abstract

The proliferation of social networking platforms such as Facebook, Twitter, and Instagram has greatly facilitated social interactions among individuals, and thus their product consumption becomes more visible to their peers. This enhanced visibility influences consumers' purchase decisions of conspicuous goods, because it affects social value derived in their conspicuous consumption. In this study, we develop an analytical model to study the impact of such social technologies on social pricing along a distribution channel. Consumers have conspicuous consumption preferences, and are grouped by snobs and conformists. Snobs value the product exclusivity while conformists prefer the product popularity. One may expect that firms will set higher prices (i.e., wholesale price and retail price) when more consumers are conformists, because social technologies amplify their conspicuous consumption preferences and thus improve their overall willingness to pay for the product. However, our research suggests that this is not always the case. This interesting finding hinges on the idea that the firms may strategically set lower prices to encourage the product popularity. We show that a better social technology that leads to a higher visibility for conspicuous consumption can either raise or lower the wholesale price and retail price. Moreover, we find that the manufacturer may gain (lose) while the retailer may lose (gain) under a better social technology; that is, a better social technology may not necessarily benefit all the firms in a distribution channel. Furthermore, we also demonstrate that the advancement of a social technology may improve or impair consumer surplus. Lastly, we consider several model extensions to validate the robustness of our findings in broader contexts.

Keywords: social technologies, social pricing, conspicuous consumption, consumer social interaction, distribution channels

Suggested Citation

Gao, Yuetao and Liu, Shaoxuan and Shen, Bo and Tan, Yinliang, Social Pricing in a Distribution Channel under Conspicuous Consumption (September 16, 2021). Available at SSRN: https://ssrn.com/abstract=3922225

Yuetao Gao

Xiamen University ( email )

Xiamen, Fujian 361005
China

Shaoxuan Liu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

1954 Huashan Rd.
Shanghai Jiao Tong University
Shanghai, Shanghai 200030
China

Bo Shen

Wuhan University - School of Economics and Management ( email )

Luojia Hill, Wuhan
Wu Han, Hu Bei 430072
China

Yinliang Tan (Contact Author)

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

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