abstract

Brand products and their non-brand substitutes are ofttimes vertically differentiated more than their material quality differential due to social contexts. Consumers of a brand product may extract utility either by being envied for affording it, in which case their utility is a function of how many others cannot afford it, or by signalling their wealth, in which case their utility is a function of the average wealth of all who consume it. In each of these two cases we analyse qualitatively the brand monopolist's underor over-pricing incentives as opposed to socially optimal pricing.