Logo Logo
Help
Contact
Switch Language to German
Friedrichsen, Jana (2018): Signals Sell: Product Lines when Consumers Differ Both in Taste for Quality and Image Concern. Collaborative Research Center Transregio 190, Discussion Paper No. 70
[img]
Preview
832kB

Abstract

This paper analyzes optimal product lines when consumers differ both in their taste for quality and in their desire for social image. The market outcome features partial pooling and product differentiation that is not driven by heterogeneous valuations for quality but by image concerns. A typical monopoly outcome is a two-tier product line resembling a "masstige" strategy as observed in luxury goods markets. Products can have identical quality and differ only in price and image, thereby rationalizing quality-equivalent line extensions. Under competition, both average quality and market coverage are (weakly) higher but monopoly can yield higher welfare than competition.