A Veblen good is something that people want more of when the price goes up, mainly because it’s seen as exclusive and a status symbol. This is the opposite of what usually happens, where demand drops as prices increase. So, a Veblen good actually has a demand curve that slopes upwards, unlike the usual downward-sloping one.
It is typically a desirable, high-end product. This is different from a Giffen good, which also features an upward-sloping demand curve but is a non-luxury item that lacks readily available alternatives.
Learn more about Veblen Good
The rise in demand for a Veblen good shows what consumers like and want, with the increased demand directly linked to the price hike. This term comes from American economist Thorstein Veblen, who is famous for coining the phrase “conspicuous consumption.”
Veblen goods are pretty common, unlike Giffen goods, which are rare and hard to spot. Super expensive items that are sold as “exclusive” or give off a vibe of success, like designer jewelry, high-end watches, yachts, and luxury cars, fall into the Veblen goods category.
Typically, Veblen goods are aimed at wealthy people, have a strong brand image associated with luxury, and are much more likely to be found in fancy boutiques rather than regular department stores. Essentially, a Veblen good is a luxury item that most people either won’t or can’t afford.
Veblen Goods vs. Giffen Goods
Veblen goods are those fancy, high-end items that folks buy to boost their self-esteem. The steep price tag is actually the appeal, which is why more people want them as their prices go up. Given human nature, it seems like there will always be a strong market for Veblen goods.
As mentioned earlier, both Veblen and Giffen goods have a demand curve that slopes upward. This indicates that as their prices rise, so does the demand. The key difference lies in the type of goods they represent.
Veblen goods are luxury items that signal status in society, like fancy cars, yachts, high-end wines, perfumes endorsed by celebrities, and designer jewelry.
On the flip side, Giffen goods are necessities like rice, potatoes, and wheat. Their demand remains high even when prices go up because there aren’t any good substitutes available.
There are plenty of examples of Veblen goods, but Giffen goods are pretty uncommon. Some economists even argue about whether Giffen goods really exist at all.
The Causes
Research shows that people tend to feel happier and gain more satisfaction when they buy a Veblen good. This happens because such goods make individuals feel special and valued, giving them confidence that they’re acquiring something of high quality that others can’t easily access. Many folks think this added value justifies the extra cost.
When a product is priced high, consumers usually believe it’s of superior quality, even if that’s not true. A lot of companies might source or manufacture their products in the same places, but due to branding and marketing, some items are sold at a higher price. If the price of a product goes up, consumers might see this as a sign of better quality and be more inclined to pay the increased amount.
In a similar vein, when a product is seen as hard to get, wealthy buyers are often ready to spend more on it. This is especially true in the art market. Works from famous artists who have passed away, like Picasso or Monet, can sell for millions because there are only a few available. The price doesn’t always indicate the quality of the artwork; it’s more about the fact that the artist’s pieces are not easily obtainable.
Conclusion
They are luxury items of high quality that folks buy to boost their self-esteem. The steep price is the key factor, which is why demand for these goods rises as their prices go up. Given human nature, there will likely always be a strong market for Veblen goods.