Status and welfare under monopolistic competition

Abstract

This article departs from the traditional welfare analysis of social status seeking by incorporating scale economies, product differentiation, and monopolistic competition into a model. I argue that social status seeking could be welfare improving rather than the usual conclusion that social status seeking is welfare-reducing, under some assumptions that are not particularly strong. Market distortions of the quantity–variety and consumption–leisure trade-off may be corrected by social status seeking. Since modern societies are arguably closer to monopolistic competition than perfect competition, we may also need to rethink the long-held belief that the welfare effects caused by social status seeking are usually negative.