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Web End = Int Rev Econ (2016) 63:93106
DOI 10.1007/s12232-015-0228-x
RESEARCH ARTICLE
Wai Chiu Woo
Received: 4 December 2013 / Accepted: 12 February 2015 / Published online: 26 February 2015 Springer-Verlag Berlin Heidelberg 2015
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 diversication is a more likely outcome. Elasticity of marginal status is identied 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, diversication also tends to appear.
Keywords Status goods Positional goods Product differentiation
Product variety Monopolistic competition
JEL Classication D11 D43 L13 Z13
1 Introduction
This short paper aims at establishing a simple but important result: As concerns for status become more signicant and other things being equal, it is likely that people tend to consume a greater variety of goods instead of a higher quantity of each good when a weak condition is satised: as individuals chase for higher status by consumption and set a higher consumption standard, everyone will nd it harder to attain status by the same efforts. This condition, we believe, is very intuitively
W. C. Woo (&)
Department of Economics, The Chinese University of Hong Kong, Sha Tin, Hong Kong e-mail: [email protected]
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Web End = Quantity versus variety: Which aspect does status-seeking promote?
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appealing, if not extremely reasonable. Therefore, we believe our result is not supercial.
This result is an advancement of the existing studies in the following sense. Although existing studies have already uncovered under what conditions status preference will increase or reduce variety, there is no clear argument to support either scenario. In this paper, we establish that if the weak...