What do you think of first when we say ‘Cartier’? A shiny diamond that takes one’s breath away. Something that connotes status, flair and prestige. And of course, demands a fair share of money.

But even then, products like a Cartier diamond or a Birkin Bag are forever in demand. And this is because they fall into a category of goods, called Veblen goods.

What are Veblen goods

Theoretically, A Veblen good is a type of luxury good for which the demand increases with the increase in price.

This is opposite to the law of demand and according to economics, results in an upward-sloping demand curve.

Veblen goods are named after American economist of Norwegian descent Thorstein Veblen, who first identified conspicuous consumption as a mode of status-seeking. Now, conspicuous consumption is the purchase of goods or services for the specific purpose of displaying one’s wealth, rather than satisfying basic needs.

Conspicuous consumption goes in tandem with Veblen goods because conspicuous consumption revolves around showing how much money someone spent on something. If the price of that good rises, it shows off wealth even more.

For example, wearing designer clothes and using expensive accessories. An INR 500 handbag will also solve the same purpose as a designer handbag from Louis Vuitton. But still people will spend on buying a bag from LV as a status symbol.

Reasons why Veblen goods are in high demand

1. The price of a Veblen good is a part of its charm and appeal. They provide a status symbol and the rise in prices of a Veblen good, makes the product even more desirable.

2. They have a high utility value, as people purchase them to feel good about themselves. On paying a premium for the privilege of owning something of high quality that is out of reach for ordinary people gives them a sense of achievement.

3. Also, higher the price, higher is the perceive indication of quality. Though this may not be true every time, it is the case with most luxury goods.

4. Also, Veblen goods are not just restricted to products, but also encapsulates services. For example, a keratin treatment at the salon is much preferred than at a local beauty parlor.

Related concepts

1. Giffen goods

A Veblen good is often a high-quality, desirable product, as opposed to a Giffen good, which is a lower-quality product with limited number of alternatives.
Giffen goods focus on non-luxury items, whereas Veblen goods focus on luxury items.

Also, the demand for Giffen goods rises on increasing the price.

2. Snob Effect

The Snob effect in economics states, that if the price of the product decreases, its snob appeal diminishes, making the product’s purchase less desirable.

As one can see, this Snob effect is dependent on the number of commodities demanded in the market, notwithstanding its price.

However, the Veblen effect is dependent on the price of the luxury items itself.