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Cost leadership and pricing in conspicuous goods markets

Author

Listed:
  • S. Sajeesh

    (Baruch College, City University of New York)

Abstract

We study competitive positioning and pricing strategies in markets with negative consumption externalities. Negative consumption externality is modeled as a decrease in preference for a product as more consumers purchase the same product. Using a two stage Hotelling type model, we show that a cost leader prices higher than the cost disadvantaged firm when the magnitude of negative consumption externality in the market is below a threshold otherwise the cost leader prices lower than the cost disadvantaged firm. Also, increase in population density decreases price differential between the cost leader and the cost disadvantaged firm.

Suggested Citation

  • S. Sajeesh, 2010. "Cost leadership and pricing in conspicuous goods markets," Economics Bulletin, AccessEcon, vol. 30(4), pages 3348-3354.
    • Handle: RePEc:ebl:ecbull:eb-10-00520
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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I4-P309.pdf
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    Cited by:

    1. Armando Memushi, 2014. "Conspicuous Consumption and Albanians: Determinant Factors," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 12(1), pages 65-87.

    More about this item

    Keywords

    Negative Consumption Externalities; Cost Leadership; Conspicuous Goods; Pricing; Hotelling Models;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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