Inspiration Incorporated

I was thinking recently about the number of times I’ve heard, “it’s more expensive, so it must be better” and it is not a small number. But what implications do thinking like this have? According to me, the whole point of money is to value the utility of buying a certain good but it is not a two way implication. It can’t be a two way implication. If a more expensive good is considered to be better by consumers, that gives businesses incentive to gradually increase their price even if their good is not as valuable.

Let us consider clothes. What should decide the cost of, lets say, jeans? The cloth, the design, the labor, the shipping? However, the major proportion of the price is paid for the brand value or exclusivity. Suppose a high-end retailer sells a pair of jeans for about $450 and the cheapest jeans you can get on the market is $20. A consumer would perceive the $20 jeans to be of much inferior quality than the $450 jeans even if it may not be true. Most consumers would then go on to buy what they would perceive to be of acceptable quality, i.e. somewhere between $20 and $450. This gives incentive for the $20 jeans to either actually reduce quality and improve margins or increase price and improve margins. Both of which lead to the consumer getting less for their money than before. Either of these actions by the $20 jeans company makes the high-end companies increase prices for two reasons. First, to maintain the new quality per dollar metric set by the reduced quality of the $20 jeans, and second, to keep a price gap to maintain exclusivity if the $20 jeans get assigned a higher price.

The change in actual quality due to the consumers perceived quality causes a devaluation of money as consumers end up getting less in the future. This is still highly speculative though and I have not been able to find any notable work that addresses a similar problem of consumer perception and its effects on the market. Any thoughts on the topic would be welcome.