Identity Goods, Positional Goods and Style PDF

# Identity Goods, Positional Goods and Style ## Identity Goods - Are goods that are more likely to be consumed by individuals “with taste” more likely to be identity goods? ## Positional Goods - Signal owners' high relative standing with society, and so they usually exhibit superior quality & f...

# Identity Goods, Positional Goods and Style ## Identity Goods - Are goods that are more likely to be consumed by individuals “with taste” more likely to be identity goods? ## Positional Goods - Signal owners' high relative standing with society, and so they usually exhibit superior quality & features, but value comes from their level of reliability to signal their status. - Are goods that are more likely to be consumed by upper/lower class individuals more likely to be positional goods? ## Style - The way something is done/made, which necessarily means that there is choice, and that no one way is clearly and always better than the others, which means that style shows something about the one doing/making it and/or the one consuming it. - Stylistic innovations = non-technological = not necessary to achieve a particular technical effect. ## Fashion Paradoxes - **Fashionable:** what many want to imitate it, but when this is achieved it becomes less fashionable. - **Imitation is the sincerest flattery:** increasing the legitimacy and popularity of the product - BUT to keep competitive advantage, you want to decrease imitation to defend product profit (as long as it is fashionable). ## Herd Behavior - Being in a herd is an advantage. - The herd moves together. - Each individual animal will try to stay in the center of the herd, regardless of where the optimal direction actually is. - The way the herd is going becomes the optimal direction, regardless of anything else. ## Matthew Effects (“the rich get richer; the poor get poorer”) 1. **Self-Fulfilling Prophecies:** expectations about future events lead to behaviors that cause those expectations to become true. - Certain individuals (e.g., influencers) are perceived as knowledgeable about trends, and their endorsement can help solidify a trend. - Doubting an influencer's authority or predictions can lead to the opposite effect, where the anticipated trend fails to materialize. 2. **Self-Reinforcing Processes:** initial actions create feedback loops that reinforce the original state. - Something becomes fashionable as more people adopt it. ## 4.1 Self-fulfilling prophecies in cultural markets. - This study examines the influence of perceived popularity on consumer choices, particularly in the context of cultural markets (e.g., music), and how false perceptions of popularity can manipulate behavior. ### Key Terms - **Self-Fulfilling Prophecy:** A (false) perception that leads to its own fulfillment over time. - **Popularity as Proxy for Quality:** Consumers rely on popularity indicators when they lack direct knowledge about a product's quality, using rankings as a signal of what might be worth trying. ### Key Findings 1. **Short-Term Effects:** Perception of Popularity as a Self-Fulfilling Prophecy → Songs falsely labeled as > popular saw > downloads, demonstrating the social influence of popularity. 2. **Long-Term Effects:** Restoration of True Popularity → Over time, the original rankings of songs, especially those with higher inherent appeal, were restored to their expected positions. - Individual preferences reasserted themselves. 3. **Prisoner's Dilemma Effect:** While one producer might benefit by spreading false information about popularity, if everyone does this, the entire market suffers due to a loss of consumer trust. This ultimately reduces overall demand and downloads. ### Limitations of the Study - Artificial Nature of Experiment: complete inversion of popularity rankings is unlikely in reality. - Single source of Information (popularity) is a oversimplification of the market, where in reality there are multiple sources, such as reviews & endorsements. - Only looking at the decision of final consumers, not the many middlemen like gatekeepers. - Only applicable to Mass Market Goods where popularity is crucial in consumer choices. - Popularity does not always make a good more valuable. ## 4.2 Cultural consumption and status at work - Signals such as highbrow consumption reflect social status which are associated with significant costs (time, effort, money). ### Status Signaling - **3rd Party Signal:** reviews from an expert/external - **2nd party Signal:** the producer themselves, where > cost of production = > trustworthy - **1st Party Signal:** from the consumer - Address information asymmetries-where the signaler knows more about their status than the receiver (e.g., coworkers). - Costs of signals (money, opportunity costs) make them > trustworthy and valuable. ### (Highbrow Art) Cultural Consumption as Status Signal: - Highbrow cultural consumption signals status > in non-profits, especially for higher-ranking employees, than in for-profits. - **For-profit organizations:** offer multiple other status signals (e.g., luxury cars, offices, perks), so cultural consumption is a less common status signal. - **Non-profit organizations:** = egalitarian, so they lack overt status symbols. - Explicit status markers are discouraged (e.g., luxury cars seen as inappropriate for NGO directors), so highbrow consumption is used more frequently as a subtle, prestigious signal of status. - **Workplace status:** is a stronger driver of cultural consumption than broader societal status. An employee's span of control significantly affects their likelihood to engage in highbrow cultural activities. ### Cost-Benefit Perspective - The attractiveness of a given signal depends on which other signals are available. - **Conspicuous Consumption:** purchasing a good with the primary goal of showing status to others. - **Cheap signaling:** High-cost items (e.g. designer goods) may serve as cheaper /alternative status symbols . ## 4.3 Cloak or flaunt? Fashion dilemma. ### Standard Marketing Theory on Competitive Advantage - Produce a lof of signals to potential consumers so they: - Know about your product. - Are able to find you and your product. - Believe your product is popular with others. ### Fashion Firms Trade Off - Consumers derive utility from fashion by: 1. **Conforming with peers** → flaunting, widespread access. 2. **Differentiating themselves from peers** by signaling their good taste, knowledge or wealth. ### Popularity effects in Fashion 1. **Snob effect:** > popular = < exclusive → signaling value decreases. 2. **Bandwagon Effect:** > popular - > adoption to fit in → signaling value increases. ### Flaunting: - A marketing strategy where firms openly promote their products to a wide audience. - Increases demand and social interaction by making it highly accessible. - Undermines product's value to signal consumer taste/sophistication (i.e., no differentiation). ### Cloaking: - A marketing strategy where firms are strategically uninformative about their products. - Cloaking does not work in mass-market products where visibility and accessibility (like popular music) drive success. - > exclusive & hard to find product = < often used as a signaling device, but a stronger signal. ### Firms adopt cloaking when: - Their good lends itself to conspicuous consumption (i.e., signaling status). - There exists a small group of consumers willing to pay a premium for exclusivity. - These consumers want to distinguish themselves from the larger mass market. ## 4.4 Reputational sanctions and imitation in firms - Investigates how reputational sanctions and inter-firm linkages act as deterrents to imitative behavior in design-innovative firms, particularly in the furniture industry. - **Main Claim:** Reputational sanctions are an effective deterrent to imitation, especially when firms value their reputation for innovation and operate in networks with strong inter-firm connections. ### Imitation as a Problem - The threat of imitation is significant because perceived newness and innovation are primary indicators of value in these cultural (e.g. fashion or desgin furniture) markets. - **Imitation as Flattery:** For top-tier firms, being copied by lower-tier firms can enhance their reputation as market leaders and innovators. ### Protection Against Imitation - **Intellectual Property Rights (IPR):** Legal mechanisms such as patents, copyrights, and models that protect innovations. - **Appropriability:** The ability of firms to reap profits from their innovations. - **Informal Mechanisms like secrecy, continuous rapid innovation, & reputational mechanisms in networks:** - **Reputation Mechanisms as a Deterrent to Imitation:** firms that place high value on their reputation for innovation are less likely to copy competitors, fearing damage to their reputational capital. - **Inter-firm Linkages:** firms in tight-knit networks share information, making it easier to detect and discourage imitation. Opening up to competitors during early stages of product development allows for innovation without the fear of imitation. ### Propositions: 1. **Value of Reputational Capital:** Firms that value > design-innovation → > effective reputational sanctions as imitation deterrent. 2. **Network Linkages:** Firms with tight inter-firm linkages → > competitive strength and innovation → Stronger reputational sanctions. 3. **IPR Regimes:** Firms in weaker IPR environments rely more heavily on reputational sanctions than those in stronger IPR regimes to protect their innovations.