Quantity versus variety: Which aspect does status-seeking promote?

Abstract

We introduce status goods in a model of monopolistic competition for investigating whether a stronger preference for status promotes a higher quantity or a greater variety of status goods in equilibrium. We argue that diversification is a more likely outcome. Elasticity of marginal status is identified as the crucial factor. Under the widely adopted relative-consumption hypothesis, elasticity of marginal status equals one, which supports a higher variety. Under other hypotheses, if the status return from an extra unit of own consumption falls as others' consumption rises, elasticity of marginal status is likely to be higher than one or not substantially smaller than one. In these reasonable patterns, diversification also tends to appear.