Veblen Goods Explained: How They Work, Types, and Examples

A Veblen good is a unique type of product for which demand rises alongside its price, contrary to the typical pattern of falling demand with increasing prices. These goods are associated with exclusivity and are considered status symbols. Unlike regular goods, Veblen goods have an upward-sloping demand curve.

The increased demand for Veblen goods is a result of consumer preferences that link higher prices with enhanced desirability. This phenomenon is named after Thorstein Veblen, the American economist known for introducing the concept of “conspicuous consumption.”
Veblen goods are quite common and are easily distinguishable from Giffen goods, which are rare and more challenging to identify. Veblen goods typically include expensive and exclusive items like designer jewelry, luxury cars, yachts, and high-end watches. They are primarily targeted at affluent individuals and are often sold in upscale boutiques rather than common department stores.

Veblen goods defy the fundamental law of demand, which posits an inverse relationship between price and quantity demanded. The appeal of exclusivity drives this unusual demand pattern. When the price of a coveted, expensive product rises, it can actually become more attractive to those who value status, as it becomes less accessible to the average consumer.
However, lowering the price of such a product might reduce its exclusivity and, consequently, its appeal. This could lead status-conscious consumers to shun the product while still making it unaffordable for the mass market. In this case, lowering prices decreases overall demand, which is contrary to typical market behavior.

While there’s no fixed price point distinguishing a Veblen good from a regular product, Veblen goods are generally priced significantly higher than basic alternatives within the same category. For instance, while quality watches can be found for under $100, a Veblen watch might have a four, five, or six-digit price tag.

Both Veblen and Giffen goods exhibit an upward-sloping demand curve, indicating that demand increases as prices rise. However, their key difference lies in the type of goods they represent:

Veblen goods are numerous and relatively easy to find, while Giffen goods are relatively rare, and there’s even debate about their existence.

Studies suggest that people derive greater satisfaction from purchasing Veblen goods because of the sense of exclusivity and importance associated with them. Many individuals are willing to pay a premium for these goods, believing it’s worth the cost.
When a product is priced high, consumers often assume it must be of superior quality, even if that’s not necessarily the case. Marketing and brand identity play a significant role in this perception. Companies may source or produce their goods in the same manner, but branding and marketing create price differences. When the price increases on such a product, consumers may interpret this as an indication of higher quality, justifying the higher cost.

Similarly, goods that are perceived as hard to acquire often command higher prices. This is evident in the art world, where paintings by artists like Picasso or Monet fetch millions due to limited availability, even if the price doesn’t necessarily reflect the quality of the art.

Veblen goods are high-quality, luxury items that people purchase to elevate their self-esteem. Their high prices are a key aspect of their allure, causing demand to increase as their prices rise. As long as human nature values exclusivity and status, the market for Veblen goods is likely to remain strong.

The primary distinction between Veblen and Giffen goods is their nature. Veblen goods are luxury items like cars, yachts, and designer jewelry, while Giffen goods are essential products such as potatoes, rice, and wheat. Both types exhibit increased demand as prices rise, but for Veblen goods, it’s about exclusivity, whereas for Giffen goods, it’s due to their essential nature.

Yes, Veblen goods are invariably expensive, and their high price is integral to their appeal. People purchase these goods to showcase their societal status, engaging in a practice known as “conspicuous consumption.”

Veblen goods are considered high-utility items because they make individuals feel exclusive and important. People are willing to pay a premium for these high-quality, exclusive products that are beyond the reach of the average consumer.