Veblen Good

Published Oct 26, 2023

Definition of Veblen Good

A Veblen good is a luxury good for which an increase in price actually leads to an increase in demand. Unlike most goods where demand decreases as prices increase, Veblen goods defy the law of demand. Instead, their high price is seen as a status symbol and desired by consumers.

Example

One popular example of a Veblen good is high-end luxury cars. Luxury car brands like Rolls-Royce, Bentley, and Lamborghini are known for their high prices, which can often reach hundreds of thousands or even millions of dollars. Despite these exorbitant prices, the demand for these cars remains high and sometimes even increases when the prices rise.

The reason behind this unusual demand pattern is the perception that these luxury cars are symbols of wealth and status. Owning a Rolls-Royce or a Lamborghini is seen as a display of affluence, luxury, and social prestige. As a result, people are willing to pay a premium price for these luxury cars to showcase their status to others.

Why Veblen Goods Matter

Veblen goods challenge the traditional economic theory of demand and price. They demonstrate that consumers are willing to pay more for goods not because of their inherent value or utility, but because of the social status and prestige associated with owning them. This phenomenon has important implications for marketers and businesses operating in the luxury goods industry.

Understanding the Veblen effect allows businesses to strategically price their luxury goods higher, knowing that it can actually increase demand among their target market. It also highlights the importance of brand image and the role of conspicuous consumption in consumer behavior. Veblen goods provide a unique lens through which we can analyze the complex relationship between price, demand, and consumer behavior in the realm of luxury products.