Does equality increase conspicuous consumption?

In an interesting paper in the Journal of Consumer Research, Nailya Ordabayeva and Pierre Chandon propose that conspicuous consumption may be higher in a more equal society as it provides an opportunity for a larger increase in relative rank.

The benefits of conspicuous consumption are highest when everyone is similar as a small signal can allow someone to jump ahead of the greater number of people clustered in similar income groups. Contrast this to the often heard argument that inequality increases conspicuous consumption, particularly among the lower classes, as there are greater pressures to “keep up with the Joneses”. The lower savings rate of lower-income groups is often cited in support of this claim.

Before getting to the empirical side of the study, the logical argument is interesting. If everyone faces the same incentives to increase their conspicuous consumption and have the same capacity to engage in conspicuous consumption (which equality would imply), then they will all do so and no-one’s rank would change. Although the first person to increase their conspicuous consumption might intend to jump a large group of people in status, the reality is that most people would be increasing their conspicuous consumption simply to maintain their relative ranking. The high conspicuous consumption state is the only stable equilibrium.

This argument changes if people have different preferences or compete in different arenas for status. Then conspicuous consumption might result in a change in rank if people engage in conspicuous consumption to different degrees.

Moving to the empirical work, the authors conducted five studies in which they primed the subjects with various scenarios of equality and inequality and surveyed the subjects’ consumption intentions (I should note that I always feel a slight sense of discomfort about the robustness of studies involving priming). Across the studies, the authors found that the people at the bottom felt more satisfied in more equal scenarios, but they were also more likely to engage in conspicuous consumption.

The most interesting of these studies involved also priming the subjects with competitive or group assimilation goals. Where there is a more cooperative social context, conspicuous consumption did not increase when equality was increased. However, where people care about social gain in a competitive context, equality boosted conspicuous consumption. The effects of equality on conspicuous consumption could be mediated through the social context.

So is this work significant outside of the experimental setting? Even though there is society-wide inequality, inequality is likely to be lower within the groups that people associate and there would be gains to conspicuous consumption within those groups. A low-income person may not be able to compete with the investment banker, but they are unlikely to be pitching to the same audience. However, would exposure to other groups through television or other social mediums affect the perceived gains to conspicuous consumption?

The policy implications of this work could be important. As stated by the authors:

[W]e cannot simply assume that increasing equality will reduce consumption and that marketers and policy makers should build a more holistic view of redistribution policies and their consequences. Specifically, our results suggest that the implications of redistribution policies need to be reconsidered for different social environments. For example, we find that increasing income equality succeeds in reducing conspicuous consumption in cooperative environments and when people are indifferent to the social context. This suggests that redistribution policies may be particularly effective if supplemented with policies to promote resistance to social pressure, which focus on relationships with friends and family. Echoing Putnam (2007), the promotion of a broad sense of “we” through popular culture, national symbols, education, and common experiences may not only increase trust but could also reduce conspicuous arms races.

The question of unintended consequences to policy decision raises its head again.