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Status Goods and Market Powers

Author

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  • Chiu Woo Wai

    (Department of Economics, The Chinese University ofHong Kong, Hong Kong)

Abstract

Status goods are often produced by firms with market powers. Taking this into account, we construct a new class of models of status goods, which refutes many important results in the conventional models without assuming market powers. Specifically, relative consumption effect normally leads to under-consumption of status goods, which is the opposite of the conventional result. Generally speaking, status goods may be over- or under-consumed, depending crucially on a widely overlooked factor in the literature- the elasticity of marginal status. More competition tends to support overconsumption and is not necessarily welfare-enhancing. Our results call into questions if, as often suggested in existing literature, a general taxation is an appropriate solution to tackle market bias from status seeking.

Suggested Citation

  • Chiu Woo Wai, 2016. "Status Goods and Market Powers," German Economic Review, De Gruyter, vol. 17(1), pages 26-35, February.
    • Handle: RePEc:bpj:germec:v:17:y:2016:i:1:p:26-35
    DOI: 10.1111/geer.12065
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