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Veblen Good

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Veblen Good

A good for which demand increases as the price increases, because of its exclusive nature and appeal as a status symbol.

(Investopedia at http://www.investopedia.com/terms/v/veblen-good.asp#ixzz3bcXwppfP, accessed 30 May 2015.)

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A Veblen good, like a Giffen good, has an upward-sloping demand curve, which runs counter to the typical downward-sloping curve. However, a Veblen good is generally a high-quality, coveted product, in contrast to a Giffen good which is an inferior product that does not have easily available substitutes. As well, the increase in demand for a Veblen good reflects consumer tastes and preferences, unlike a Giffen good, where higher demand is directly attributable to the price increase. The term is named after the American economist Thorstein Veblen, who is best known for introducing the term “conspicuous consumption.”

Veblen goods are fairly commonplace, unlike Giffen goods which are elusive and quite difficult to identify. Very expensive products – such as designer jewelry, pricey watches, and luxury cars – that are marketed as being “exclusive,” or which convey the appearance of success, can be classified as Veblen goods. Veblen goods are generally targeted at affluent individuals, have a very strong brand identity that is synonymous with luxury and are far more likely to be sold in upscale boutiques than in common department stores.

Veblen goods contradict the basic law of demand – which states that quantity demanded has an inverse relationship with price – because of their snob appeal. If the price of a coveted and expensive product is increased, it may actually enhance its appeal to the status-conscious, since it is now further out of reach for the hoi polloi. But if the price of such a product is lowered, its snob appeal may diminish resulting in it being shunned by status-conscious consumers, while at the same time still being too expensive for the mass market. Overall demand would therefore decline with lower prices, instead of increasing.

While there is no specific price point that can be identified as the dividing line between a Veblen good and a normal product, it may be safe to assume that a Veblen good is generally priced exponentially higher than a basic product in the same category. Take the case of watches – good-quality watches are widely available for less than $100, but to qualify as a Veblen good, a watch would probably carry a four, five or six-digit price tag.

(Investopedia at http://www.investopedia.com/terms/v/veblen-good.asp#ixzz3bcXwppfP, accessed 30 May 2015.)


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