New Horizons in International Business series
Edited by Ben L. Kedia and Kelly Aceto
Chapter 9: The demonstration effect of consumption across cities in China: evidence from the automobile market
Diffusion of products, especially new innovations, has attracted widespread interest from both academia and industry. New product consumption can be a prominent symbol of personal taste, wealth, and social status. This social aspect in new product diffusion is arguably more pronounced in countries with collectivistic cultures such as China. Imitation of aspirational groups in such cultures can increase social status (Xenos, 1989) and act as a signal of conspicuous consumption (McCormick, 1983). The ‘demonstration effect’ results from such imitating behavior, and is defined as illustrating the phenomenon that people emulate others’ consumption habits (Duesenberry, 1949). Demonstration effect usually exists among different social hierarchies. People in lower social strata may try to learn from the behavior of people in higher social strata as they aspire to the better lives that the higher social strata are perceived to enjoy. In China there are clear gaps in development among different cities. Based on the disparate development in different geographical areas, cities can be categorized into differing tiers. Cities in higher tiers are usually regarded as cities with better economic conditions, more preferable policies, and higher quality pool of manpower.
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