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Concept
Veblen good
Summary
A Veblen good is a type of luxury good for which the demand increases as the price increases, in apparent contradiction of the law of demand, resulting in an upward-sloping demand curve. The higher prices of Veblen goods may make them desirable as a status symbol in the practices of conspicuous consumption and conspicuous leisure. A product may be a Veblen good because it is a positional good, something few others can own.
Veblen goods are named after American economist Thorstein Veblen, who first identified conspicuous consumption as a mode of status-seeking (i.e., keeping up with the Joneses) in The Theory of the Leisure Class (1899). The testability of this theory was questioned by Colin Campbell due to the lack of complete honesty from research participants. However, research in 2007 studying the effect of social comparison on human brains can be used as an evidence supporting Veblen. The idea that seeking status can be an incentive to spend was also later discussed by Fred Hirsch.
Additionally, there have been different arguments on whether Veblen’s theory applies only to luxury goods or all goods.
A corollary of the Veblen effect is that lowering the price may increase the demand at first, but will decrease the quantity demanded afterwards.
The following concepts can explain the existence of Veblen goods:
Pecuniary emulation (or pecuniary success), which leads to invidious comparison (or invidious distinction).
Relative consumption trap.
The inverse relationship between one’s well-being with another’s income.
The suppression of explicit attempts to emphasize social status differences.
The theory of Veblen good made a significant contribution towards marketing and advertising. There are multiple studies considering Veblen goods as a tool to develop and maintain a strong relationship with consumers.
While Veblen goods are more affordable for high income households and affluent societies are usually known as the targeted income groups of Veblen brands, they have been experiencing a trend away from conspicuous consumption.
Official source
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