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Raghunath Rao of the McCombs School of Business will present "Conspicuous Consumption and Dynamic Pricing."
Raghunath Rao of the McCombs School of Business, University of Texas at Austin, will present "Conspicuous Consumption and Dynamic Pricing."
How do firms develop strategy when consumers seek to satisfy both quality and status-related considerations? Rao's analytical model seeks to understand this issue, examining both pricing and product management decisions in markets of conspicuous durable goods. His analysis yields many interesting and non trivial insights. First, it demonstrates that high intrinsic quality indirectly generates exclusivity via pricing effects; in turn, this exclusivity conveys high social status to a large audience when consumption is greatly visible. This insight reverses the direction of causality in the existing literature, wherein only status considerations matter and mere price increases may enhance consumer utility. Second, his dynamic model indicates that more visible products earn greater profits in equilibrium; however, since visible products entail status motivations, these items endure substantially higher price depreciation.
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