Toward an economic theory of fashion.
Coelho, Philip R.P. ; McClure, James E.
Strong as is the desire for variety, it is weak compared with the
desire for distinction: a feeling which if we consider its universality,
and its constancy, that it affects all men at all times, that it comes
with us from the cradle and never leaves us until we go to the grave,
may be pronounced to be the most powerful of human passions.
Nassau Senior(1)
With the greater part of rich people, the chief enjoyment of riches
consists in the parade of riches, which in their eyes is never so
complete as when they appear to possess those decisive marks of opulence
which nobody can possess but themselves.
Adam Smith(2)
I. INTRODUCTION
Positively sloped "demand" curves are used in marketing
textbooks to explain the pricing of fashion merchandise.(3)
"Snob" or "prestige" effects are alluded to in
support of the claim that price increases can lead to an increase in the
quantity demanded. In the tenth edition of their text, E. Jerome
McCarthy and William D. Perreault [1990] offer a demand curve with a
positively sloped segment. They explain:
Prestige pricing is setting a rather high price to suggest high
quality or high status. Some target customers want the "best,"
so they will buy at a high price. But if the price seems
"cheap," they worry about quality and don't buy. (P. 506;
footnote omitted, emphasis in the original.)
In another text, Ralph M. Gaedeke and Dennis Tootelian [1983] also
discuss a positively sloped demand curve:
Some products do not have the traditional downward sloping demand
curve previously described, but a more curved slope, illustrated in
Exhibit 13-6 [demand curve with upward sloping portion--not shown]. This
reflects the real impact of price as a part of the product's value.
Quite obviously, as a product's price rises above [P.sub.0], demand
will begin to drop as some consumers will simply be unable to afford the
product. However, that decline is rather slow until very high prices are
reached. But demand also begins to drop at prices below [P.sub.0],
showing that part of the reason for owning the product lies in its high
price--it has prestige value.
Economists react by asserting that marketing explanations are ad hoc,
devoid of economic content. Conversely, marketers say that economic
models are naive and incapable of explaining the marketing of fashion
goods. As economists, we have a bias towards economic explanations, but
these explanations are incomplete and not highly valued by the market.
In stark contrast, the advice of professional marketers (that economists
contend is muddled or worse) is amply rewarded in consulting work. Is
there a market failure in the consulting market, or does marketing
provide an insight that economics lacks?
We start with the premise that the intuition behind marketing
explanations, that people desire prestige, has validity. This notion can
be incorporated into economic theory using Kelvin Lancaster's
[1971] notion that when a purchase is made, what is bought is a bundle
of services or characteristics. The salient feature of a fashion good is
its ability to confer prestige or status.(4)
The argument is straightforward: There is a sociobiological basis for
status-seeking behavior. Status-seeking is an evolved trait that is
innate to humans as well as to many other animals. Given the
pervasiveness of status-seeking, human cultures have developed effective
signals of status--fashion being just one. We incorporate the status
yielding nature of fashion goods into a standard demand model by
assuming that the value consumers attach to a fashion good depends on
the stock held by other consumers. This interdependency among consumers
allows us to explain the upward sloping constructs (labeled demand
curves) that populate marketing texts. Our model has downward sloping
demand curves throughout, but (because of the interdependencies)
generates cyclical price behavior that can be misconstrued as aberrant
(positively sloped) demand functions. The result is more complete in an
economic analysis of fashion than marketing explanations, and less naive
than most economic theories, while still maintaining downward sloping
demand curves.
II. THE LITERATURE
The literature on product pricing, fashion and human status is
vast.(5) The prefatory quotation from Nassau Senior clearly supports the
notion that both he and Alfred Marshall (who preserved Senior's
remarks in his own work) regarded this quest as fundamental and
powerful. Adam Smith wrote in The Theory of Moral Sentiments:
...vanity is always founded upon the belief of our being the object
of attention and approbation. The rich man glories in his riches,
because he feels that they naturally draw upon him the attention of the
world, and that mankind are disposed to go along with him in all those
agreeable emotions which the advantages of his situation so readily
inspire.
In this passage, Smith suggests that riches are desired primarily for
their ability to enhance one's status.
Other prominent nineteenth century economists who wrote on status
were John Rae, and Thorstein Veblen.(6) In The Theory of the Leisure
Class, Veblen espoused a view of human nature which contended that some
aspects of human behavior were a way of proclaiming rank.(7)
Veblen's approach was adopted by fringe economists and
sociologists,(8) and in mainstream economics by Harvey Leibenstein [1950].
Relying on consumer interdependencies he developed propositions about
the elasticity of demand for "snob" and "bandwagon"
goods, and generated demand functions that were positively sloped for
"Veblen" goods.(9) Leibenstein's approach is an excellent
introduction to the economics of fashion, but it provides no rationale
for the way consumers behave.(10) Further, it focuses solely on the
demand side with no explanation of firm behavior, market supply, nor
equilibrium dynamics.
Positional goods were introduced into economics by Fred Hirsch
[1978]. Positional goods, such as rank or titles, establish one's
place in society.(11) Their unique features are their zero-sum
characteristics. The zero-sum nature of fashion goods was elegantly
noted by George J. Stigler and Gary S. Becker [1977]:
The commodity apparently produced by fashion goods is social
distinction: the demonstration of alert leadership, or at least not
lethargy, in recognizing and adopting that which will in due time be
widely approved. This commodity--it might be termed style-- sounds
somewhat circular, because new things appear to be chosen simply because
they are new. Such circularity is no more peculiar than that which is
literally displayed in a race--the runners obviously do not run around a
track in order to reach a new destination.(12)
Positional goods convey distinction, but the larger the number of
people who claim it, the less distinction it confers. Work on positional
consumption is growing; notable among those currently working in this
area is Robert H. Frank (1985a; 1985b; 1988; 1991b).(13)
III. A SOCIOBIOLOGICAL EXPLANATION OF STATUS-SEEKING
Both economics and evolutionary theory assume the pervasiveness of
scarcity. Evolution favors organisms that are superior competitors in a
given environment.(14) Sociobiology, an extension of evolutionary
theory, contends that some behaviors are innate and can be culled or
selected through evolution. To grasp the importance of status (rank) for
evolutionary success,(15) it is necessary to examine genes, the
instrument by which evolutionary forces work.(16)
The characteristics of an individual are determined by its genetic
inheritance. In species that reproduce sexually, evolution works through
sexual selection as well as the external environment.(17) Any gene that
enhances the reproductive success of an individual is pro-adaptive and
will tend to be more heavily represented in future gene pools.(18)
Present-day humans have existed for at least 40,000 years,(19) or
between 1,400 to 2,000 human generations.(20) Evolutionary mechanisms
have had more than enough generations to work on the human species.(21)
Humans are social animals propagating in sexual pairs. Neither
infants nor individual adults can survive for long periods without the
assistance of their fellows. All available evidence suggests that for
hundreds of millennia humans have been subject to these conditions.
There is substantial evidence that the status of social animals is
positively correlated with reproductive success.(22) Human psychology
and physiology is affected by the individual's rank or status in
society.(23) Anthropological, historical, and psychological studies
indicate that status within human society enhances an individual's
chances for survival and reproduction.(24)
Competition for status is typically among individuals of the same
sex.(25) High status in the relevant sexual peer group signals that the
individual is a relatively good mate for members of the opposite sex.
Because it enhances survival and reproduction, the genetic forces
causing humans to crave status could be as strong as the sex drive.(26)
Evolutionary forces have had millennia to shape humanity into a race
of status seekers.(27) The specific signals that connote one's rank
in society tend to be idiosyncratic to a culture. Evolutionary forces
will also work on signals of status. Signals that are false or easily
counterfeited will be culled, while accurate signals will prevail.
Fashion is a pervasive signal, but its manifestations are peculiar to
each society.(28)
IV. AN ECONOMIC ANALYSIS OF FASHION/STATUS GOODS
Fashion goods signal status.(29) To be an effective signal(30) the
fashion good must be more costly to obtain for those who do not possess
the status than for those who do.(31) If fashionable clothing is to be
an effective signal of status, it must change. An unchanging fashion and
a second-hand market would allow everyone to be "fashionable,"
negating the value of fashion as a signal.
The resources required to attain the fashion signal may be rationed
in a variety of ways, wealth being only one of them. In the Western
world, until well into the eighteenth century, sumptuary laws existed
detailing who had the right (not the monetary resources) to wear various
garments.(32) The non-wealth constraints on the purchase of
"status" goods enabled the fashion or status signal to be
easily recognized as an indicator of relative rank.(33) Increasing
material abundance raised the cost of enforcing legal constraints upon
an individual's ability to purchase clothes and other consumables
that were legally constrained. In the recent modern era (post 1750 in
the West) sumptuary laws fell by the wayside.
Absent sumptuary laws, in a society of status seekers individuals are
continually attempting to elevate their perceived social rank by
acquiring the signal. Social ranking is a zero-sum game: gains are
offset by losses.
Consider an archetypical example of a pure fashion good, "neck
ties" worn by men.(34) Ties are solely decorative and indicate that
the wearers' activities are not physical. Ties cost resources, and
are uncomfortable if one has to make physical exertions. Wearing a tie
to work indicates that a man's professional status is such that
physical exertions are not required. Ties signal effectively because
they are easily discernable, and they impose costs upon men who attempt
to acquire the signal (the tie) without actually having the
characteristic (the employment that does not require physical
exertions).(35)
If a group of men agree not to wear ties, their social ranking vis a
vis one another will be unaffected. They will save the resources they
would have spent on ties, and they will not suffer the physical
constraints that a tie imposes. But a man who breaks the agreement gains
in perceived rank. This "prisoner's dilemma" has a
dominant solution in which men wear ties.(36)
The absence of enforceable contracts and competition for the fashion
signal leads to the prisoner's dilemma. The marginal value of a
fashion good falls as more people hold it: in Leibenstein's
terminology, a snob effect exists. This effect is incorporated into two
models of fashion goods: (A) the competitive case; and (B) the
noncompetitive case. The results lead to an explanation of apparently
upward sloping "demand" curves.
Status Goods and Fashion Cycles Under Competition
The unique feature of the market demand curve for a fashion good is
that it varies inversely with the contemporaneous stock of the good
(Q.sub.t).(37) This incorporates the impact that an increase in the
stock has upon the fashion/status services derived from a commodity, the
"snob effect" that is mentioned in the literature. If others
hold a large stock of the fashion good, its ability to provide
distinction is reduced. Because consumers cannot instantly perceive this
stock, they form an expectation [Mathematical Expression Omitted] of its
value based on experience. The following "adaptive"
expectations equation represents consumers' expectations:(38)
[Mathematical Expression Omitted],
where [Alpha] [is greater than] 0.
Equation (1) is incorporated into the otherwise standard linear
demand function as shown below:
[Mathematical Expression Omitted]
where [q.sub.t] is the flow quantity demanded in period t, with a [is
greater than] 0, b [is less than] 0, and c [is less than] 0. The
parameter "c" is referred to as the status coefficient. Its
negative sign indicates a snob effect.
The market supply curve is given the simple linear form:
(3) [P.sub.t] = r + s[q.sub.t]
where r and s are positive. The resultant equilibrium quantity at
time t is
(4) [q.sub.t]* = [1/(s-b)]
[a - r + c(1 + [Alpha])[Q.sub.t-1] - c[Alpha][Q.sub.t-2]].
This assumes that resale markets do not exist, or are of little
consequence.(39) The equilibrium is a function of only past values of
the stock and current demand/supply flows.
Completing the model is an identity that equates the current stock
with the undepreciated stock plus new production:
(5) [Q.sub.t] = (1-[Delta])[Q.sub.t-1] + [q.sub.t]
where [Delta], 0 [is less than] [Delta] [is less than] 1, denotes the
rate of depreciation. Substituting equilibrium condition (4) into the
stock identity (5) and simplifying, we find
(6) [Q.sub.t] = A + [T.sub.1][Q.sub.t-1] + [T.sub.2][Q.sub.t-2]
where
(7) [T.sub.1] = 1-[Delta]+[c(1+[Alpha])/(s-b)],
[T.sub.2] = [-c[Alpha]/(s-b)],
and
A = (a-r)/(s-b).
The side conditions for the stability of this second-order difference
equation are known. The stock converges to a stable path if (i)
[T.sub.2] [is greater than] -1, (ii) 1 + [T.sub.1] - [T.sub.2] [is
greater than] 0, and (iii) 1 -[T.sub.1] - [T.sub.2] [is greater than] 0.
If [T.sub.2] [is less than] -1 while conditions (ii) and (iii) hold,
explosive oscillations occur. If 1 + [T.sub.1] - [T.sub.2] [is less
than] 0, and (i) and (iii) hold, explosive oscillations occur. Finally,
if 1 - [T.sub.1] - [T.sub.2] [is less than] 0, and conditions (i) and
(ii) hold, explosive growth occurs.(40)
These results have implications for fashion goods. Given the
assumptions of the model (c [is less than] 0, b [is less than] 0, s [is
greater than] 0, [Delta] [is greater than] 0 and [Alpha] [is greater
than] 0), it follows that [T.sub.2] [is greater than] 0 (ruling out one
case of explosive oscillation), and explosive growth is ruled out as 1 -
[T.sub.1] - [T.sub.2] is unambiguously positive.(41)
The final possibility of explosive oscillation occurs if 1 +
[T.sub.1] -[T.sub.2] [is less than] 0. In our model the inequality
implies
(8) c(2[Alpha] + 1) [is less than] (s - b)([Delta] - 2).
Both sides of this inequality are negative; the left side is negative
because of our assumptions that c [is less than] 0 and [Alpha] [is
greater than] 0, the right side is negative because s [is greater than]
0, b [is less than] 0, and [Delta] [is less than] 1.
A major result of the model is that if the product is not a fashion
good (c = 0), the stock always converges to a stable path over time.(42)
Only for a fashion good (c [is less than] 0) can the stock be subject to
explosive oscillation. In this case, the likelihood that inequality (8)
will hold increases as: (i) [Delta] rises, (ii) s falls, (iii) b becomes
more negative, (iv) c becomes more negative, and (v) [Alpha] rises.
(i) Increases in Product Depreciation Rate ([Delta])
The stock depreciation rate increases if the rate of physical
deterioration increases or if the goods are discarded as unfashionable
at an increased rate. In the tie example, ties are relatively
inexpensive and are often discarded long before they physically
deteriorate.(43)
"Premature" disposal occurs because some characteristic or
combination of characteristics of the tie no longer gives the
appropriate fashion signal. The probability of disposal will increase
the more costly it is to store, the more difficult it is to resell, the
larger or more uncertain is the variance of the fashion cycle, and the
lower is its replacement cost.(44)
(ii) Changing the Slope of the Supply Curve (s)
A decline in the slope of the supply curve causes both an increase in
the elasticity of supply and the likelihood of explosive oscillations.
With any change in demand, existing producers and new entrants react
rapidly in changing the amount supplied. There are few obstacles to
adjusting production--manufacturers can easily change their input
purchases to alter production or shift inputs between product lines.(45)
(iii) Changing the Slope of the Demand Curve (b)
A decline in the slope of the demand curve causes the elasticity of
demand to decrease and the likelihood of explosive oscillations to
increase. As demand becomes more inelastic, any change in the stock of
the commodity leads to a larger change in the equilibrium amount traded.
In the extreme case where demand is completely inelastic, the
equilibrium quantity changes by the same amount that demand shifts.(46)
In the tie example we speculate that the demand for fashionable ties
is relatively inelastic. While ties are a necessary component of the
standard wardrobe of a white collar male, the fraction of the clothing
budget spent on ties is minuscule. Marshallian demand theory predicts
that demand becomes less elastic as the availability of substitutes
declines and as the budget share spent on the commodity declines.
Because there are few close substitutes for ties and they constitute a
minor portion of a consumer's budget, fashionable ties and their
stocks are likely to cycle.
(iv) Changing the Status Coefficient (c)
The coefficient c is negative for status goods. The larger its
absolute value, the more important status is as a component of demand,
and the larger demand shifts will be for any given change in the stock.
Too large a stock of a given fashion good will provide few status
services. The larger its stock, the greater the likelihood that the
demand for it will implode.
(v) Changing the Expectations Coefficient ([Alpha])
The expectations coefficient indicates the importance of past changes
in the stock on expectations. As [Alpha] rises, the stock is more likely
to oscillate explosively. This coefficient regulates the magnitude of
the demand shift that results from revisioned consumer expectations. If
the stock is expanding, consumers will increase their assessment of the
expected stock to a greater degree the greater is [Alpha]. The size of
the demand shift and the consequent supply response determine the cycle.
This concludes our discussion of the parameters that affect fashion
goods in the competitive case. The unique feature of this model is that,
given appropriate values for the parameters, equilibrium values for both
the stock of and demand for fashion goods fluctuates cyclically.
Graphing the resulting price/stock combinations over time, the plotted
values are sometimes upward sloping. Such evidence might suggest an
upward sloping demand to the casual observer. Of course, such a plot is
not a demand curve at all. A demand curve is a plot of the amount
demanded (not the existing stock) at various prices (per unit time)
measured at a given instant, ceteris paribus.(47) The people who argue
for upward sloping "demand" functions are not economists. The
positive price/stock relationship they observe and use is not a demand
curve, but their advice passes the market test.
B. Status Goods in Non-Competitive Markets
With minor modifications the standard model of price discrimination
can be used to analyze a fashion good. The standard model has four
assumptions: (1) resale is not feasible; (2) markets can be segmented at
low cost; (3) the amount that one group consumes does not affect the
amount that another group desires (this is the non- status good case);
(4) the seller sets a fixed (uniform) price for each group of consumers.
Maximum profit is obtained by price/quantity combinations for which
marginal revenue for each consumer group is equal to marginal cost. This
is shown in Figure 1; because the good cannot be resold, the monopolist
can charge group one demanders [P.sub.1]* and group two demanders
[P.sub.2]*, where [P.sub.2]* [is greater than] [P.sub.1]*.(48)
If the stock of a commodity affects the flow of services from an
incremental purchase, a "snob effect" is present and must be
added to the analysis of price discrimination. Assume two distinct
customer groups: first-period demanders, and second-period
demanders.(49) The snob effect is between period-one users and
period-two users; the greater the quantity purchased by first- period
demanders, [Q.sub.1], the lower its marginal value to second-period
users.
The theory depends upon the absence of resale markets. Resale markets
do not exist where transactions costs are prohibitively high.
Transactions costs can be viewed as infinitely high for services such as
those provided by restaurants, medical procedures, educational
institutions, and entertainment establishments. An archetypical example
of a firm supplying "fashion services" would be a
"fashionable" nightclub. It could maintain its cachet only by
restricting entry to clientele disproportionately composed of the
"fashionable" or "powerful."
The Vertigo Club in Los Angeles is such an establishment. It is being
sued for discrimination because it limits entry to
"fashionable" people. Management claims that limited entry
"increases demand" and without it the club would be less
successful. Nine out of ten nightclubs in Los Angeles fail within one
year of opening, yet the Vertigo Club has been in business for over six
years. The policy of discriminating in favor of "fashionable"
people has apparently maintained the Vertigo Club's demand, passing
the market test.(50)
The apparent circularity reinforces the basic point that fashion
goods are desirable because they signal one's social rank. The more
easily attainable, the less valuable is the signal to consumers. That
is, the greater the amount supplied in the current period, the lower
demand is in the future.
The snob effect results in an additional cost to the monopolistic
seller in the first period. As [Q.sub.1] rises, the total revenue the
firm can obtain in the following period, [R.sub.2], is reduced. The full
marginal cost in period one, M[C.sub.1], may be expressed as
(9) M[C.sub.1] = [MC.sub.p1] - d[R.sub.2]/d[Q.sub.1],
where M[C.sub.p1] denotes the marginal cost of production in period
one and dR2/d[Q.sub.1] is the marginal reduction in second-period
revenue resulting from increasing period-one sales.(51)
Figure 2 illustrates the effect on the monopolist's pricing
policy in the first period. The equilibrium quantity in the first
period, [Q.sub.1]**, will be lower and the equilibrium price,
[P.sub.1]**, higher than in the absence of the snob effect.
Additionally, the snob effect drives a wedge between the within-period
marginal cost of production and marginal revenue for fashion goods.
The snob effect implies that a higher price in period one increases
demand in period two. Ceteris paribus, this results in increased sales
in period two. Perhaps this is the meaning of the upward sloping
"demand" curves found in marketing texts--a higher price today
leads to greater sales in future periods.
V. CONCLUDING REMARKS
From an evolutionary perspective, there is strong evidence that there
is an innate drive for status among humans. This drive is fundamental to
the existence of fashion goods. Simple economic models that incorporate
a "snob" effect are derived that can be used to analyze
competitive and noncompetitive markets for fashion.
The competitive model generates cycles producing fashion
"booms" and "busts." In the noncompetitive model, a
discrepancy between the marginal cost of physically producing the output
and the marginal cost that actually faces the producer is predicted. In
both the models, a rationale for apparently upward sloping
"demand" functions emerges--if time is not held constant one
can obtain a positive relationship between price and the equilibrium
stock purchased over the relevant time periods. Such a construction is
not, of course, a demand curve.
Our models abstracted away the possibility of resale. The status
approach could be extended to include durables. In markets for durable
fashion goods, resale markets may exist. With a resale market, stock
supply and demand drive the model. This complicates the analysis
considerably because parameters other than current supply and demand
enter. The analysis of resale markets and stocks has appeared in the
literature for non-fashion commodities.(52) However, a theory that
combines consumer interdependencies for fashion durables with a
stock/flow analysis awaits future research.
1. This quotation has been preserved in Alfred Marshall [1961] p. 87.
2. This quotation comes from Heilbroner [1986, 190].
3. The term "prestige pricing" in a marketing text usually
indicates a "demand" function that has a positive slope
through a portion of its range. The texts that do not have sections on
"prestige pricing" either have a section on the perceived
valuation of consumers as a function of price (Richard P. Bagozzi [1986,
507]), or take a completely economic approach and say quality is higher
in higher priced goods (Philip Kotler [1991, 393-475]).
4. Consumers buy cars, for example, to travel from point A to point
B, to maintain a certain degree of comfort, and to acquire status. The
relative importance of these characteristics change in different
automobiles. The buyer of a Yugo automobile is purchasing a
substantially different amount of status relative to the buyer of a
Mercedes Benz--yet they are both European cars.
5. The literature combining these topics is not very substantial. An
incomplete survey of the Social Science Citation Index for the past ten
years reveals few articles by economists devoted to either status or
fashion, the major exception being the work by Robert H. Frank. Further,
an unsystematic search of undergraduate texts revealed only one
reference to status in an intermediate microeconomics text (Robert H.
Frank, 1991a, pp. 177-79, 511-15), although another intermediate text
had an insightful analysis of a prestige product (Donald N. McClosky,
1985, pp. 127-28).
6. For a more extensive review of the pre-1950 literature, see
Leibenstein [1950].
7. For example, Veblen hypothesized that men during the late
nineteenth century carried walking sticks to show that their hands were
"busy," leaving no room for manual labor--the user of a
walking stick was signaling that he was not a manual laborer.
8. John Kenneth Galbraith [1984] is an example of the economists and
Vance O. Packard [1959] an example of the sociologists.
9. If a snob effect exists, the amount that others possess of some
product reduces the marginal value to any consumer. If a bandwagon
effect exists, the amount that others possess of some product enhances
any consumer's marginal valuation. If a Veblen effect exists, the
price that others perceive a buyer to have paid for the good enhances
the buyer's marginal valuation. Only in the presence of a Veblen
good was Leibenstein able to derive an upward sloping
"virtual" market demand curve.
10. Leibenstein's contribution has also been generally
neglected. Robert A. Pollack [1970] is an exception; he addressed the
problem of the creation of demands in a dynamic setting. In
Pollack's conclusions, he notes that interdependence of consumer
demands may usefully be incorporated into his model. Another more recent
exception, Jeff Biddle [1991], tested Leibenstein's 1950 hypothesis
on consumer interdependencies (bandwagon effects). Finally, Uhlaner
[1989] analyzes the consumption of "relational goods." These
goods are like bandwagon goods in that they generate utility only when
consumed by a group of people.
11. Positional goods have to be very limited if they are to serve
their purpose as indicators of social rank. For example, if everyone
were addressed as "your excellency" it would convey no
distinction; consequently that form of address would not yield status.
12. One of the most interesting aspects of the Stigler and Becker
article is that they do not recognize the existence or similarities of
Kelvin Lancaster's contributions [1966; 1971] to their work.
13. For recent examples of scholarship relating to these issues, see
Mark Stegman [1991] on advertising, and Kyle Bagwell and Michael H.
Riordan [1991] on pricing. In an already noted exception, Biddle [1991]
evinces a direct interest in the subject. Also, Bilkhchandani, Sushil,
Hirshleifer and Welch directly address the status issue.
14. This refers both to competition for an ecological niche between
species and among conspecifics of the same species.
15. Evolutionary "success" is defined as the long-run
viability of the genetic inheritance of a species (or an individual).
16. Social Darwinism, a precursor of sociology, heavily influenced
nineteenth century economists and other social scientists.
17. "Environment" refers to the material resources
available, as well as ecological relationships such as predator/prey and
parasites/symbionts.
18. Genes that stimulate behavior that enhances reproductive success
will be more abundant in future gene pools. For more on this point, see
Richard Dawkins [1989].
19. The exact lineage of modern man (Homo sapiens sapiens) has not
been determined. A branch of the Homo sapiens line, Neanderthal man, has
been dated over one-half million years ago (Erik Trinkhaus and William
H. Howells [1979] and Sherwood L. Washburn [1978]). Archeological
remains of Homo sapiens sapiens have been dated at approximately forty
thousand years ago. Skulls very similar to those of modern man and very
much older than this suggest that our lineage may have been extant for
much more than forty thousand years. For further discussion see Rodney
Steel and Anthony Harvey [1979], Trinkhaus and Howells, and Washburn.
20. A generation is calculated to be between twenty to twenty-five
years. This might surprise the reader because contemporary usage for the
term generation is thirty to thirty-three years. The difference arises
because we are looking into the evolutionary history of humanity. Up
until the last two hundred years, life expectancies were less than forty
years. That would imply a span of between twenty to twenty-five years
between generations.
21. Population geneticists have calculated that a dark-skinned
Mediterranean-type population may evolve into a fair-skinned
Scandinavian-type population in as little as five thousand years if
fair-skin coloration confers an advantage of 2 percent more surviving
offspring per generation (Marvin Harris [1985, 146]). Charles J. Lumsden and Edward O. Wilson [1983] calculate that a single gene that gives
"... a small survival advantage on those who use it..." would
spread to almost the entire population in fifty generations. In human
history before the modern era a generation was about twenty years;
consequently, fifty generations would equal one thousand years. Thus the
"thousand-year rule" of Lumsden and Wilson.
22. Evidence for this statement comes from a variety of sources. For
studies linking wolves' reproductive success to their status see:
Erik Zimen [1979], Durward Allen [1979], Micheal Fox [1980] and Fred H.
Harrington and Paul C. Paquet, eds. [1979]. For literature on primates,
see: Charles J. Lumsden and Edward O. Wilson [1981; 1983] and Frans De
Waal [1982]. For an introduction to human sexuality and status see:
Doris Jonas and David Jonas [1980], Donald Symons [1979], and Robert H.
Frank [1985a]. For an exhaustive approach to the sociobiological
literature as it pertains to animals and humans, see John Alcock [1989].
Some of the physiological changes that accompany changes in status in
the animal world are quite amazing. A fish, labroides diminiatus, lives
in groups of one male and a female harem. The male is superior to any
female and there is a rank ordering among the females. If the male is
removed from the group, the ranking female undergoes a metamorphosis and
becomes a male, and he (formerly she) controls the harem and supplies
sperm to the females' eggs. See Jonas and Jonas [1980, 54].
23. Frank [1985a], devotes an entire chapter to a detailed account of
the biological/evolutionary basis for human (also with non-human
examples) status-seeking.
24. Jonas and Jonas have devoted an entire book to this proposition,
similarly Alcock, Symon, and Edward O. Wilson [1975] attest to the
importance of status in both human and non-human populations. From the
behavior of other social mammals (wolves, baboons, hyenas, and gorillas
are some examples), it appears that there is an innate (genetic) quest
for status within peer groupings of these species. Sources for this
statement are contained in footnote 20 and footnote 26; especially see
Alcock [1989].
25. The evidence presented in footnote 26 is pertinent to intra-
sexual competition. Males compete with other males for access to
females, and similarly females compete with females. Alcock [1989] has
two chapters that separately examine male competition and female
competition. The discussions of Jonas and Jonas [1980] are also
pertinent.
26. Perhaps it is even stronger than the sex drive, because status
confers not only sexual opportunities but increased feeding
opportunities. In social animals, high ranking individuals feed before
others. See Melvin Fredlund [1976], Alcock [1989], and Wilson [1975]. In
animal societies, the progeny of high-status parents have significantly
greater chances of reaching maturity and mating than those of low-status
parents. The analogy between the genetic basis for a sex drive and
status-seeking is apropos. Sexual desires are genetically transmitted,
but not all individuals have the same sexual desires and appetites, and
there are many cultural forces that constrain and channel it into forms
that differ widely between different societies and individuals within a
society. We expect that a genetically determined quest for status would
be at least as equally variable and subject to a multitude of cultural
and environmental influences. See Alcock [1989], Jonas and Jonas [1980],
and Richard Dawkins [1989] for further elaboration.
In some species, the probability of mating is so skewed that on a
probabilistic basis only high-status individuals reproduce, and there
are significant impediments that prevent the lower-ranking members of
these societies from mating. In wolves, low-ranking females seem to be
physiologically inhibited from coming into estrus by the presence of the
alpha (highest-ranking) female. Furthermore, the alpha female tries to
prevent any subordinate female from mating. (See Zimen, Allen, Fox, and
Harrington and Paquet). In other species, the social ranking of the
individual is just as important for reproductive success as in wolves
(see Wilson [1975]).
Alcock [1989] reports on the reproductive success of individuals in
various species. On South Georgia Island the top-ranking male in a
population of elephant seals had approximately 37 percent of all
copulations that occurred (the absolute number of males was
substantially greater than ten, but only ten were "ranked" in
the study). The top two males between them had over 55 percent of all
the copulations that occurred during the breeding season. In these
animal societies, adequate status is a necessary condition before the
sex drive can be satisfied.
27. Innate urges are basic to the organism's survival and
reproduction. The desire for food, sex, warmth, and shelter are all
examples of innate or genetic urges. It is important to note that
because an urge is genetic, it does NOT mean that it cannot be resisted.
After all, some humans are voluntary celibates and dieters.
28. There have been human societies that have conferred status upon
people who collected the most scalps, heads, cattle, horses, sea-
shells, stones, and, at the other spectrum, some societies have
conferred status upon those who have given away or destroyed more of
their possessions than other members of their peer groups. Like the sex
urge, we expect status-seeking to be a genetic trait, but subject to the
whims of stochastic cultural and environmental factors.
29. Fashion goods are distinguished from other goods for which
"prestige pricing" is recommended by marketers such as
pharmaceuticals and imported beers. In their marketing text, William M.
Pride and O.C. Ferrell state:
In Prestige Pricing, prices are set at an artificially high level to
provide prestige or a quality image. Pharmacists report that some
consumers complain if a prescription does not cost enough. Apparently,
some consumers equate a drug's price with its potency. Consumers
may also associate the quality of a good with its price.
In the economic literature there have been numerous studies showing
that consumers perceive that price can be used as a signal of product
quality in the absence of costless information. See, Kent B. Monroe
[1973], Paul Milgrom and John Roberts [1986], and David J. Curry and
Peter C. Riesz [1988] for examples of the relationship between price and
perceived quality.
30. A. Michael Spence [1973; 1974] has made valuable contributions to
the literature on signaling and elaborates on the effectiveness of a
signal.
31. The signal must be accurate, otherwise the signal would have
conferred a disadvantage. If signals cost resources and are not accurate
predictors, then individuals who invest resources in signaling and those
who believe the false signals will be culled over generations.
32. For more information and a review of the literature see, Philip
R. P. Coelho [1985]. For information on these restrictions, see Thomas
B. Costain [1958]. Outside the field of clothing, other laws existed
forbidding some social classes the right to do what other classes were
legally entitled to do. For example, in Scotland under James I it was
illegal for people with less than baronial ranking to consume baked meat
pies. During the same period in England, it was illegal for servants to
have more than one meal of meat or fish per day, nor was it legal for
them to spend more than three shillings and four pence per year on
clothing. These examples also come from Costain [1958, 263].
33. As an anonymous referee pointed out, the laws discussed in this
paragraph may have been enacted for the purpose of curbing fashion
"arms races." He provided us with the additional example of
school uniforms that are required by some private schools.
34. The "neck tie" example that we use may be descriptive
of reality, but is meant to be illustrative rather than literal. The
example may be modified without damaging the argument.
35. Ties can also be viewed as a signal of wealth. As long as tie
styles (the combination of width, pattern, color, material, etc.)
continually change, the cost of consistently wearing a fashionable tie
is higher for the poor than for the wealthy.
36. The addition of more individuals enhances the argument. The more
anonymous individuals are, the more "free riding" is expected.
This is because if there are very many people, one individual will
benefit materially from violating an agreement if all but one keep it.
If all break it but one, the additional cost of one more breaking it is
negligible.
As an anonymous referee pointed out, the process may be desirable in
an evolutionary sense because status-seeking may enhance the viability
of the species. A species' evolutionary chances are improved if
their social system allows reproductive success to the
"fittest."
37. There is an important distinction between market demand and an
individual's demand. If an individual is offered a unique
"deal" on a fashion commodity, he will typically take it. The
question that interests us is what would the market response be if all
consumers were offered the same "deal"--this question is the
issue that this paper addresses.
38. One can imagine more elaborate equations with which to represent
expectations. The assumed equation has the advantage of making the
analysis of the cycle tractable. There appears to be no consensus in the
profession on the form of such equations, and, in defense of our
formation, it has a historic lineage: in summarizing Phillip
Cagan's results [1956], Sargent [1987, 195] employs this form of
adaptive expectations for prices.
In a world of rational expectations, the model changes according to the costs and benefits of information. If information were free,
accurate, and instantly available, then there would be no fashion cycle.
But resources are scarce, and information is costly and imperfect. In
such a world adaptive expectations could be rational. (Adaptive
expectations are a subset of rational expectations. Depending upon the
costs/benefits of information, adaptive expectations could be fully
rational.)
39. Resale markets complicate the analysis by conflating the stock of
the commodity with both demand and supply equations. Whether an
individual is a demander or a supplier in such a model becomes
problematic. We found these problems intractable.
40. For a description and proof of the characteristics of
differential equations and cycling, see William Baumol [1959, 221].
41. This proposition is easily verified:
1 - [T.sub.1] - [T.sub.2] [is equivalent to] 1 - 1 - [Delta] + [c
(1+[Alpha])/(s-b)]}
- [-c[Alpha]/(s-b)]
= 1 - 1+[Delta] - [c/(s-b)] [is greater than] 0.
42. If c = 0 in equation (8), a contradiction emerges because the
right side will be negative while the left side will be zero; the
condition for explosive oscillation cannot be met.
43. Cf. footnote 33.
44. If the stock implodes, the model's condition for cycling is
that the stock becomes negative. Negative stocks are not possible;
consequently, the cycle terminates. Exogenous events at some future date
may give new life to the fashion good. Such events are not predictable,
giving the cycle an unpredictable variance.
45. Imagine an initial situation in which the stock is expanding
rapidly (extra wide ties in the mid-1960s). Recognizing this, consumers
revise their expectations of the stock upward; this decreases the demand
for ties. Because of the high supply elasticity, the demand shift
sharply reduces the equilibrium quantity traded. This process
predictably leads the stock of extra wide ties to implode in a
subsequent period; wide ties fall from the height of fashion to objects
of derision.
46. From an initial situation in which stock has been expanding,
consumers subsequently revise their expectations causing demand to
implode. With inelastic demand, the leftward shift has a greater effect
on the current equilibrium amount sold as well as future stocks.
47. There is an interesting and subtle point here; if demand theory
is to be operational then demand (and supply) must be stable over some
period. Consequently, applying the ceteris paribus assumption to time
and holding to it strictly--i.e., not allowing time to pass--makes the
concepts of supply and demand operationally meaningless. Just generating
a quantitative estimate employs time, thus any test of the theory means
that the strict assumption of ceteris paribus has been violated.
48. Subscripts denote consumer groups: [D.sub.1] is the demand of
group one, [D.sub.2] is the demand of group two, and so forth.
49. Consumers in groups one and two may be the same consumers.
Particularly in the case of a fashion service, we expect repeat
customers.
50. This summary is taken from the radio program Morning Edition for
26 June 1991; a transcript is available from National Public Radio in
Washington, D.C.
Another product that fits the analysis is Soviet caviar. Jane Mayer
writes, "The mood in the Soviet caviar business is as black as
beluga--not because this most luxurious of bourgeois treats is so rare,
but because it is in danger of becoming too plentiful.... Soviet and
Western experts who oversee the rarefied and lucrative caviar trade
worry that the delicacy is on the verge of becoming, of all horrors,
common." The Wall Street Journal, 18 November 1991, pp. Al, A12.
51. The term d[R.sub.2]/d[Q.sub.1] should actually be discounted into
present values. In order to simplify this presentation we will omit an
explicit consideration of the discount rate. It should be noted that as
the interest rate rises, d[R.sub.2]/d[Q.sub.1] becomes smaller.
52. Robert W. Clower [1954] investigated the relationships between
stocks and flows in investment.
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PHILIP R. P. COELHO and JAMES E. MCCLURE, Professor, Ball State
University, and Associate Professor, Ball State University. We
gratefully acknowledge the support of a John W. Fisher grant awarded by
the Ball State University Foundation, the contributions made by our
colleagues at Ball State University, anonymous referees, and the editor
of this Journal. All remaining errors are our own.