To propose a monopoly model of conspicuous consumption and to examine how purchase decisions are affected by the desire for exclusivity and conformity. The paper claims an initial small step has been taken here towards incorporating social factors into economic models of marketing phenomena. Conspicuous goods are purchased by consumers not only to satisfy their material needs, but also social needs such as prestige. Such practices are seen in the limited market offerings of cars, coins, cosmetics, watches, and jewelry. The paper develops a parsimonious monopoly model based on the rational expectations framework. Under rational expectations framework, all players are assumed to think strategically. The model captures consumers' desire for exclusivity and conformity by allowing the utility derived from a product to depend not only upon its intrinsic value, but also on consumption externality. Snobs are modeled as consumers who value exclusivity and thus their utility from a product decreases as more people consume the same product. Followers are modeled as consumers whose utility from a product increases as more people consume the product. Exclusivity can enable the firm to charge a higher price and potentially earn higher profits. Based on experimental investigations with 20 subjects, the paper concludes that more snobs buy as price rises even though the products have neither quality differences nor any signal value (like wealth of consumers). If the market consists of only snobs or only followers, then the demand curve is always downward sloping. In the presence of both segments, the demand curve of snobs could be upward sloping. Several other results are also presented.
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