In economics

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, Veblen goods are a group of commodities

Good (economics and accounting)

In economics, a good is something that is intended to satisfy some wants or needs of a consumer and thus has economic utility. It is normally used in the plural form—goods—to denote tangible commodities such as products and materials....

 for which people's preference for buying them increases as their price increases, as greater price confers greater status, instead of decreasing according to the law of demand

Law of demand

In economics, the law of demand is an economic law that states that consumers buy more of a good when its price decreases and less when its price increases ....

. A Veblen good is often also a positional good

Positional good

In economics, positional goods are products and services whose value is mostly a function of their ranking in desirability by others, in comparison to substitutes. The extent to which a good's value depends on such a ranking is referred to as its positionality...

. The Veblen effect is named after economist Thorstein Veblen

Thorstein Veblen

Thorstein Bunde Veblen, born Torsten Bunde Veblen was an American economist and sociologist, and a leader of the so-called institutional economics movement...

, who first pointed out the concepts of conspicuous consumption

Conspicuous consumption

Conspicuous consumption is spending on goods and services acquired mainly for the purpose of displaying income or wealth. In the mind of a conspicuous consumer, such display serves as a means of attaining or maintaining social status....

 and status

Social status

In sociology or anthropology, social status is the honor or prestige attached to one's position in society . It may also refer to a rank or position that one holds in a group, for example son or daughter, playmate, pupil, etc....

-seeking.

Explanation

Some types of high-status goods, such as high-end wines, designer handbag

Handbag

A handbag, or purse in American English, is a handled medium-to-large bag that is often fashionably designed, typically used by women, to hold personal items such as wallet/coins, keys, cosmetics, a hairbrush, pepper spray, cigarettes, mobile phone etc....

s, and luxury cars are Veblen goods, in that decreasing their prices decreases people's preference for buying them because they are no longer perceived as exclusive or high status products. Similarly, a price increase may increase that high status and perception of exclusivity, thereby making the good even more preferable. Often such goods are no better or even worse than their lower priced counterparts. However, this 'anomaly' is mitigated when one understands that the demand curve does not necessarily have only one peak. The goods generally thought to be Veblen goods are still subject to the curve since demand does not increase with price infinitely. Demand may go up with price within a certain price range, but at the top of that range the demand will cease to increase before it begins to fall again with further price increases. At the other end of the spectrum, where luxury items priced equal to non-luxury items of lower quality, all else being equal more people would buy the luxury items, even though a few Veblen-seekers would not. Thus, even a Veblen good is subject to the dictum that demand moves conversely to price, although the response of demand to price is not consistent at all points on the demand curve.

Veblen goods and consumer psychology are major themes of such late 20th-century novels as Viktor Pelevin's Generation "П" and Frédéric Beigbeder

Frédéric Beigbeder

Frédéric Beigbeder is a French writer and literary critic. He won the Prix Interallié in 2003 for his novel Windows on the World and the Prix Renaudot in 2009 for his book Un roman français...

's 99 Francs

99 Francs

99 Francs is a 2007 film by the French director Jan Kounen based on a novel with the same title written by Frédéric Beigbeder.-Plot:The film is a satire on the modern advertisement business...

.

Related concepts

The Veblen effect is one of a family of theoretically possible anomalies in the general theory of demand

Law of demand

In economics, the law of demand is an economic law that states that consumers buy more of a good when its price decreases and less when its price increases ....

 in microeconomics

Microeconomics

Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...

. Other related effects include:

• the snob effect
  Snob effect
  The snob effect is a phenomenon often observed in the field of microeconomics that refers to the situation where the demand for a certain good for individuals of a higher income level is inversely related to the demand for the good by individuals of a lower income level...
  
  : preference for goods because they are different from those commonly preferred; in other words, for consumers who want to use exclusive products, price is quality;
• the bandwagon effect
  Bandwagon effect
  The bandwagon effect is a well documented form of groupthink in behavioral science and has many applications. The general rule is that conduct or beliefs spread among people, as fads and trends clearly do, with "the probability of any individual adopting it increasing with the proportion who have...
  
  : preference for a good increases as the number of people buying them increases;

These effects are discussed in a classic article by Leibenstein (1950). The concept of the counter-Veblen effect is less well known, although it logically completes the family.

None of these effects in itself predicts what will happen to actual quantity of goods demanded (the number of units purchased) as prices change—they refer only to preferences or propensities to purchase. The actual effect on quantity demanded will depend on the range of other goods available, their prices, and their substitutabilities for the goods concerned. The effects are anomalies within demand theory because the theory normally assumes that preferences are independent of price or the number of units being sold. They are therefore collectively referred to as interaction effects.

The interaction effects are a different kind of anomaly from that posed by Giffen good

Giffen good

In economics and consumer theory, a Giffen good is one which people paradoxically consume more of as the price rises, violating the law of demand. In normal situations, as the price of a good rises, the substitution effect causes consumers to purchase less of it and more of substitute goods...

s. The Giffen goods theory is one for which observed demand rises as price rises, but the effect arises without any interaction between price and preference—it results from the interplay of the income effect and the substitution effect of a change in price.

Recent research has begun to examine the empirical evidence for the existence of goods which show these interaction effects. The Yale Law Journal

Yale Law Journal

The Yale Law Journal is a student-run law review affiliated with the Yale Law School. Published continuously since 1891, it is the most widely known of the eight law reviews published by students at Yale Law School...

has published a broad overview. Studies have also found evidence suggesting people receive more pleasure from more expensive goods.

See also

• Conspicuous consumption
  Conspicuous consumption
  Conspicuous consumption is spending on goods and services acquired mainly for the purpose of displaying income or wealth. In the mind of a conspicuous consumer, such display serves as a means of attaining or maintaining social status....
  
  
• Giffen good
  Giffen good
  In economics and consumer theory, a Giffen good is one which people paradoxically consume more of as the price rises, violating the law of demand. In normal situations, as the price of a good rises, the substitution effect causes consumers to purchase less of it and more of substitute goods...
  
  
• Positional good
  Positional good
  In economics, positional goods are products and services whose value is mostly a function of their ranking in desirability by others, in comparison to substitutes. The extent to which a good's value depends on such a ranking is referred to as its positionality...
  
  
• Status symbol
  Status symbol
  A status symbol is a perceived visible, external denotation of one's social position and perceived indicator of economic or social status. Many luxury goods are often considered status symbols...
  
  
• Consumer surplus