Veblen Good
Definition
A Veblen good is a luxury product for which demand rises as price rises. Unlike normal goods—where higher prices reduce demand—Veblen goods become more desirable when they are more expensive because price itself conveys exclusivity and status.
How it works
- Demand for a Veblen good can display an upward-sloping demand curve over some price range: higher prices strengthen its appeal to status-conscious buyers.
- The effect depends on perception (status, prestige, rarity) rather than on fundamental changes in usefulness or availability.
- Lowering the price can reduce demand because the item loses status and exclusivity.
Common examples
- Designer jewelry and haute couture
- Luxury watches and high-end cars
- Yachts and private jets
- Fine wines and collectible art
- Limited-edition or celebrity-endorsed products
Veblen goods vs. Giffen goods
- Veblen goods: luxury/status items whose demand increases with price because of desirability and signaling.
- Giffen goods: basic, often inferior staples (e.g., rice, potatoes in extreme historical cases) whose demand may rise with price because consumers cannot afford better substitutes and shift consumption patterns.
- Key difference: Veblen goods are status-driven luxury items; Giffen goods are necessity-driven and typically non-luxury.
Causes of the Veblen effect
- Conspicuous consumption: buyers purchase to signal wealth or status.
- Perceived quality: consumers infer higher price = higher quality.
- Scarcity and exclusivity: limited supply or difficult access raises desirability.
- Brand identity and marketing: strong luxury branding amplifies the status signal.
Pricing and market implications
- Luxury brands can use higher prices as a deliberate positioning tool to reinforce exclusivity.
- The Veblen effect typically applies only within a price range and among target affluent consumers—raising price beyond that range or among mass markets may reduce demand.
- Not every expensive product is a Veblen good; the product must confer social or status benefits that buyers value.
Frequently asked questions
-
Are Veblen goods always expensive?
Yes—price is part of the appeal. If a product does not command a premium, it generally will not function as a Veblen good. -
Do Veblen goods provide high utility?
They provide a type of utility that includes emotional and social benefits (status, prestige) in addition to functional use. -
Are Veblen goods common?
More common than true Giffen goods. Many luxury markets exhibit Veblen-like behavior.
Conclusion
Veblen goods illustrate how social preferences and signaling can invert normal price–demand relationships. For luxury brands and marketers, understanding this effect informs pricing and positioning strategies; for economists, it highlights the role of status and perception in consumer behavior.