Demand for Luxury Goods in a World of Income Disparities

Anna Ray and Antoine Vatan
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Anna Ray: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Antoine Vatan: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, LMA - Laboratoire de macroéconomie - Centre de Recherche en Économie et STatistique (CREST)

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper approaches international trade in luxury goods from demand side. It associates demand for luxury goods with within-country income disparities, via a social interactions component, the so-called Veblen effect (Veblen 1899). In the theoretical part, we propose a simple model of vertical differentiation with preferences displaying a Veblen effect. The model predicts that demand for luxury goods increases with the income gap between the two socio-economic groups (wealthy and non-wealthy agents). Furthermore, wealthy individuals in societies with higher income disparities have higher incentives to purchase luxury goods and hence they are willing to pay more for these. Next, we provide an empirical validation of these predictions on a sample of French high-end exporters (as defined by Martin and Mayneris, 2013) from French 8-digit CN custom data for 2006 at firm-product-destination level. Both demand for and average firm-product unit values of luxury goods are increasing with the income gap in importer country. The relationship is robust to inclusion of control variables as well as to use of alternative measures of income dispersion.

Keywords: International Trade; Luxury Goods; Veblen Effects (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-int
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