Superiority Seeking and the Preference for Exclusion

Alex Imas, University of Chicago, Booth School of Business and Kristof Madarasz, London School of Economics

We propose that a person’s desire to consume an object or possess an attribute increases in how much others want but cannot have it. We term this motive imitative superiority-seeking, and show that it generates preferences for exclusion that help explain a host of market anomalies and make novel predictions in a variety of domains. In bilateral exchange, there is a reluctance to trade, leading to an endowment effect. People’s value of consuming a good increases in its scarcity, which generates a motive for firms and organizations to engage in exclusionary policies. A monopolist producing at constant marginal cost can increase profits by randomly excluding buyers relative to the standard optimal mechanism of posting a common price. In the context of auctions, a seller can extract greater revenues by randomly barring a subset of consumers from bidding. Moreover, such non-price-based exclusion leads to higher revenues than the classic optimal sales mechanism. A series of experiments provides direct support for these predictions. In basic exchange, a person’s willingness to pay for a good increases as more people are explicitly barred from the opportunity to acquire it. In auctions, randomly excluding people from the opportunity to bid substantially increases bids amongst those who retain this option. Consistent with our predictions, exclusion leads to bigger gains in expected revenue than increasing competition through inclusion. Our model of superiority-seeking generates `Veblen effects,’ rationalizes attitudes against redistribution, and provides a novel motive for social exclusion and discrimination.