Trendsetting in conspicuous consumption: The impact of a resale market

Abstract

Social influence, such as snobbish and conformity effects, is believed to play a fundamental role in conspicuous consumption. The rapidly growing market for second-hand luxury products, particularly in the form of consumer-to-consumer (C2C) resale, presents a new opportunity for the conspicuous goods industry. To evaluate the impact of the C2C resale market on conspicuous consumption, we develop a monopoly model over two usage periods, where two types of conspicuous consumers can trade used products on the resale market. We first examine the implications of social influence on conspicuous goods, providing insights into how such products are priced. Then the impact of the C2C resale market on luxury market performance is explored. Interestingly, we find that it prompts different strategic behaviors among snobs and conformists, generating the “trendsetting-following effect.” Furthermore, social externalities within the conspicuous framework amplify the value enhancement effect and mitigate the cannibalization effect of secondary markets on the retailer, ultimately driving market expansion and boosting the retailer’s profit. Although the presence of a secondary market lowers the retail price in the primary market, it increases the retailer’s profit under certain conditions, while it always boosts consumer surplus and social welfare, resulting in a win-win-win situation for consumers, the retailer, and society.