Social pricing of luxury products in a distribution channel

Abstract The proliferation of social networking platforms like Facebook, Twitter, Instagram, and TikTok has greatly facilitated social interactions among individuals, and thus their product consumption has become more visible to their peers. This enhanced visibility influences consumers' purchase decisions of luxury products because it affects social value derived from conspicuous consumption of these products. In this paper, we develop an analytical model to study the impact of such social technologies on social pricing of a manufacturer and a retailer offering luxury products along a distribution channel. Consumers exhibit conspicuous consumption preferences and are grouped into snobs and conformists : Snobs value product exclusivity, while conformists desire product popularity. We derive the following interesting results. First, a better social technology that leads to higher visibility for conspicuous consumption can either raise or lower the wholesale price and retail price. Second, the manufacturer may gain (lose) while the retailer may lose (gain) under a better social technology; that is, the manufacturer's and retailer's preferences regarding the level of a social technology may not be aligned. Third, the advancement of a social technology may harm consumer surplus. Lastly, we consider several model extensions to validate our findings in broader contexts.