Dress to impress: Brands as status symbols |
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Institution: | 1. Department of Agricultural Economics, Purdue University, United States;2. Department of Economics and Decision Sciences, Western Illinois University, Macomb, IL 61455, United States;3. Department of Economics and Environmental Studies Program, Binghamton University, Binghamton, NY 13902, United States |
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Abstract: | We analyzed the market for indivisible, pure status goods. Firms produce and sell different brands of pure status goods to a population that is willing to signal individual abilities to potential matches in another population. Individual status is determined by the most expensive status good one has. There is a stratified equilibrium with a finite number of brands. Under constant tax rates, a monopoly sells different brands to social classes of equal measure, while in contestable markets, social classes have decreasing measures. Under optimal taxation, contestable markets have progressive tax rates, while a monopoly faces an adequate flat tax rate to all brands. In contrast with extant literature, subsidies may be socially optimal, depending on the parameters, in both market structures. |
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Keywords: | Brand Competition Free entry Matching Monopoly Signaling Status Tax Welfare |
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