Abstract
This paper develops a simple, social theory of advertising, in a setting where consumers value social status. Consumers differ in their wealth, which is unobservable, and all consumers want others to believe they are wealthy. A monopolist advertises and sells a conspicuous good that allows consumers to signal their wealth through their purchases. Advertising is purely informative: consumers who receive an ad are able to buy the conspicuous good and also to recognize it when others buy.
I show that in equilibrium, the firm can use advertising to exploit consumer status concerns by increasing the stigma of those who don’t buy and promoting widespread recognition of those who do. High levels of advertising can induce consumers to behave as if they have a preference for conformity, small changes in advertising levels can have large effects on demand, and the firm may advertise to consumers it knows are unwilling to buy.
I show that in equilibrium, the firm can use advertising to exploit consumer status concerns by increasing the stigma of those who don’t buy and promoting widespread recognition of those who do. High levels of advertising can induce consumers to behave as if they have a preference for conformity, small changes in advertising levels can have large effects on demand, and the firm may advertise to consumers it knows are unwilling to buy.
| Originalsprog | Engelsk |
|---|---|
| Status | Udgivet - 2012 |
| Udgivet eksternt | Ja |