Pricing and quality decisions with conspicuous consumers

With the growing demand of individuality, conspicuous consumption has gradually become a common phenomenon. This study focuses on how conspicuous consumption affects firm’s pricing, quality decisions and profit. By developing a game-theoretic model consisting of one monopolist who sells a conspicuously consumed status product and two segments of consumers, i.e., conspicuous consumers and non-conspicuous consumers (the former are less sensitive to price than the latter), we come to the following results. Firstly, the presence of conspicuous consumers benefits the firm by leading to higher quality and price when their price sensitivity is relatively low, while can hurt the firm by leading to lower quality and price regardless of the proportion of conspicuous consumers and the conspicuousness degree when their price sensitivity is quite high. Secondly, for a moderate price sensitivity, we find an interesting result that the proportion of conspicuous consumers shows a non-monotonic effect on the firm’s profit. Specifically, the firm’s profit increases (decreases) with the proportion of conspicuous consumers when the quality investment efficiency is high (low) and the conspicuousness degree is low (high), while the profit decreases first and then increases for those medium quality investment efficiency and conspicuousness degree. Furthermore, we find that the joint decisions on quality and price exhibit strategic complementarity. Finally, the robustness of the results obtained is verified in numerous model extensions.