: VIP inflation: Exclusive goods and services foster feelings of superiority — and leads to people paying higher prices

by | Aug 16, 2022 | Stock Market

Have you ever wondered why in some shopping malls, some of the luxury stores have long lines of people waiting to enter, cordoned off by red velvet ropes? It’s not that there isn’t enough room in the shop, or that there isn’t enough staff on hand to attend to customers. It’s because the company is capitalizing on the fact that artificially limiting people generates a buzz — a feeling that whatever is on the inside of that store is so special that it’s worth the wait, and worth draining that wallet.

That “motive” for companies to lure customers by using such “exclusionary” policies is one takeaway from a paper recently distributed by the National Bureau of Economic Research.  The authors, Alex Imas of the University of Chicago and Kristof Madarasz of the London School of Economics, found that excluding people randomly from specific situations is a tactic that often results in larger-than-expected gains for some companies, as people bid upward to get their hands on their product, as compared to the company trying to cater to a wide variety of people. Consider how certain clubs and restaurants work. They may be immensely popular, but they don’t increase prices, or their seating or standing capacity, to reflect the long lines out the door.  Luxury brands “would rather burn millions in undamaged product than threat …

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