Luxury Consumption:the Contest For Status Ranking

With the development of China’s economy, more and more consumers are keen on luxury consumption. China has become one of the largest luxury consumption powers in the world. According to statistics, during the times of downturn of the global luxury market in2013, China’s domestic consumption of luxury goods was as high as1.9458trillion yuan, increasing by6.1%compared with the last year, and China has become the largest customer in global luxury market. As a developing country, China has made a great contribution to the global consumption, which has attracted great attention of the public around the world.However, compared with the Western luxury market, Chinese luxury market is an emerging market with a short-time development. Therefore, with the rapid development, some problems have risen in Chinese luxury market. For example, China’s consumption on luxury goods is excessive. Money spending on the luxury goods is4%in the whole wealth in other countries, while Chinese often spend about40%of wealth on luxury goods. Another phenomenon is conspicuous consumption. Luxury goods are treated as symbols of identity, status, power and so on. Some consumers choose a brand by its price and visibility, ignoring the product’s design philosophy and cultural background. This consume psychology of "the price determines the value" makes consumers go into such a strange cycle that "more expensive, more buying " and even "not for the best, but for the most expensive". With the development of such consume psychology and luxury consumption, the entire society becomes impetuous and vainglorious, which has negative impact on the growth of young people, especially adolescents. Also, it is not conducive to the healthy development of society. Hence, it has importantly practical significance to in-depth study the luxury consumers’behavior and guide the rational development of the luxury industry, whether for the individual or for the society.In recent years, there are a lot of academic researches on luxury consumption, but mainly concentrated on exploring consumers’ motivation based on the psychology, or investigating the consumers’behavior based on the marketing, or putting forward countermeasures for luxury consumption outflows in China. These researches do not offer an explanation framework for the endogenous mechanism that produced by luxury consumption. According to the analytic framework of race theory and the symbolic function of luxury goods, this paper links luxury consumption with "social status" to analyze the relationship between them and the negative effects caused by excessive consumption. On the one hand, this paper provides a reasonable perspective for the study of luxury consumption; on the other hand, it can also cause consumers’reflection for their behaviors.Firstly, this paper will give a description of the contest theory, containing the studying object, basic factors and the standard way of equilibrium analysis. In the contest of this paper, the prizes are higher status, respect, unique opportunities, etc., and the effort is the consumption on luxury goods. In short, contestants will increase their spending on luxury goods in order to win the race. On the basis of this analysis, I will construct a model of status competition between consumers. Firstly, I will study a contest that only includes two players. Then, I will analyze the multi-players competition. By equilibrium analysis, this paper examines the relationship between the consumption of luxury goods and status rewards, exogenous factors and the role of luxury consumption tax. In addition, the article also analysis the negative effects of status contest from the perspective of welfare economics, including:(1) the consumer personally, may not achieve the desired effect (i.e., social status);(2) the excessive consumption on luxury goods may make social wealth more flow to the top class, and unevenness will be intensified by the inequality of income distribution;(3) in the short-term, it will cause capital outflows and influence the development of China’s economy, for the luxury market is not perfect in China;(4) in the long run, it will has a negative impact on the formation and development of social values.Based on the theoretical analysis, the article puts forward several recommendations to improve the phenomenon of luxury consumption. The most important thing is to guide people transfer their understanding for luxury. In fact, it is the contribution to society by charity and public welfare that enhance the image truly, but not brand-name cars, luxury homes or private aircraft; it is high accomplishment and rich content that highlight one’s status, but not Rolls-Royce cars, Hermes bags and Swiss Military Watches.This paper is one of phased achievements of Natural Science Foundation of China called "Research for the mechanism, effect and regulatory issues of the’draft’ competition in society"(project approval number:70973014). It was selected by "the third consumer finance seminar in China", which is hosted by the Financial Research Center of Tsinghua University, Editorial Department of Economic Research and GSPBC and was reported at the meeting in June2014.