Globalization, defined as "growing interdependence of the world's economies, cultures, and populations" can be intended as a process leading to a borderless world, where national cultures mix, financial resources and capabilities flow across states, ideas exchange among people and contribute to generate citizens of the world. Thus, in the era of globalization, that about 258 million people were living outside their country of birth in 2017 comes with no surprise. Rather, it sounds paradoxically that, at the same time, nationalism is back. The economic effects that the coexistence of these two conflicting phenomena can determine are a priori unpredictable. Disentangling them is the object ot the current research project.
Our analysis emcompasses three main considerations. The entry point is that in many cases, the "person's sense of self", the so called identity contributes to guide the economic agents' choice. Also, it is well known that in a globalized economy with goods made worldwide available, consumers are segmented by firms through quality differentiation of products. On the one hand, this quality differentiation allows firms to escape from the Bertrand paradox, which traditionally emerges in a price competition game with homogeneous products. On the other hand, consumers, when choosing certain products, satisfy their social needs: a luxury brand confers to her/his buyer prestige and esteem among peers, thereby distinguishing her/him from those who cannot afford the same luxury items. In some circumstances, the symbolic content of goods are even more relevant than their intrinsic quality and consumption is changed in a conspicuous practice. Finally and in contrast with the second ingredient of our analysis, the resurgence of nationalism pushes forward the idea of national identity and somehow justifies strict immigration laws, import quotas and tariffs as a means to preserve the traditional values of a country.
These considerations inspire our analysis.
Close in spirit to the existing contributions on social identity and cross-cultural infuences, our modelling strategy puts our analysis far from them and makes or approach novel in the literature. More precisely, we combine the view that goods are used by consumers to contrast their own habits with the ones of neighbours (Veblen, Bagwell and Bernheim,1996 and Bowles and Park 2005) with the notion of relative preferences adopted by Ben Elhadj and Tarola (2015). In their setting of vertical differentiation a la Mussa and Rosen (1978), consumers value a good along a relative dimension: its relative quality, namely the quality gap with respect to another adjacent variant, determines its ranking along a social ladder and, thus, its economic price. We add to this formalization, a further component which captures consumers' ethnocentric feelings. Then, we assume that this component is group-specific, so that it changes depending on whether natives or migrants are considered. We assume that native consumers attribute a social content to the goods. In particular, they thrive additional satisfaction when consuming a branded good rather than an umbranded one, since only the former can satisfy their sense of place. By contrast, they suffer a psycological penalty if they consume the unbranded good. Migrants, at the very beginning, do not have any concern with respect to brand and only judge the intrinsic quality of variants. We describe a dynamic setting where consumers of the two groups meet and exchange experiences about consumption. These interpersonal encounters may induce a change of beliefs about consumption. Natives may cease to attribute a symbolic value to goods, or migrants may start attaching a social content to consumption. If a change in beliefs takes place, then the individual consumption choice maybe change, with effects on the equilibrium configuration.
To the best of our knowledge, we are the first to provide some insights on the role of sense of place in a setting of vertical differentiation with natives and migrants coexisting in the same market.
Moreover, we plan to use the 'European Union Statistics on Income and Living Conditions (EU-SILC) data to empirically test our theoretical predictions.
EU-SILC is a cross-sectional and longitudinal sample survey, coordinated by Eurostat, based on data from the European Union member states. EU-SILC provides data on income, poverty, social exclusion and living conditions in the European Union.
Typically, the sense of place has been solely considered as a driver of action in experimental economics. Our approach is instead somehow in line with the neoclassical view that consumers are rational agents: following Akerlof and Kranton (2000), we adopt a broader notion of rationality with embeds the identity. This enables to build the theoretical model in the vein of microeconomic theory and to combine with it an empirical analysis.