How do you cut the price of a status good?

Mr. Stuart is among the many consumers in this economy to reap the benefits of secret sales — whispered discounts and discreet price negotiations between customers and sales staff in the aisles of upscale chains. A time-worn strategy typically reserved for a store’s best customers, it has become more democratized as the recession drags on and retailers struggle to turn browsers into buyers.

Answer:  you don’t, at least not publicly.  Status goods have something like an upward sloping demand curve.  The higher is the price, the more people are willing to pay for it.  So the best way to increase sales is to maintian a high published price but secretly lower the price.

Of course, word gets out.  (For example, articles are published in the New York Times and blogged about on Cheap Talk.)  People are going to assign a small probability that you bought your Burberry for half the price, making you half as impressive.  An alternative would be to lower the price by just a little, but to everybody.  Then everybody is just a little less impressive.

So implicitly this pricing policy reveals that there is a difference in the elasticity of demand with respect to random price drops as opposed to their certainty equivalents.  Somewhere some behavioral economists just found a new gig.

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