Abstract
Abstract Status goods are often produced by firms with market powers. Taking this into account, we construct a new class of models of status goods, which refutes many important results in the conventional models without assuming market powers. Specifically, relative consumption effect normally leads to under-consumption of status goods, which is the opposite of the conventional result. Generally speaking, status goods may be over- or under-consumed, depending crucially on a widely overlooked factor in the literature- the elasticity of marginal status. More competition tends to support overconsumption and is not necessarily welfare-enhancing. Our results call into questions if, as often suggested in existing literature, a general taxation is an appropriate solution to tackle market bias from status seeking.
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