What is Veblen Good?
456 reads · Last updated: December 5, 2024
A Veblen good is a good for which demand increases as the price increases due to its exclusive nature and appeal as a status symbol. This runs counter to the prevailing circumstance of demand falling as prices rise. Thus, a Veblen good has an upward-sloping demand curve rather than the typical downward-sloping curve.A Veblen good is generally a high-quality, coveted product. This stands in contrast to a Giffen good, which also has an upward-sloping curve but is a non-luxury product with no easily available substitutes.
Definition
Veblen goods are products for which demand increases as the price increases, due to their uniqueness and appeal as status symbols. This is contrary to the typical situation where demand decreases as price rises. Therefore, the demand curve for Veblen goods slopes upwards, unlike the typical downward slope.
Origin
The concept of Veblen goods was introduced by economist Thorstein Veblen in 1899, in his book "The Theory of the Leisure Class," where he explored the relationship between consumption and social status. Veblen noted that certain goods are sought after by consumers for their luxury and rarity, to display wealth and status.
Categories and Features
Veblen goods are typically high-quality, desirable products such as luxury items, branded clothing, and luxury cars. Their main feature is that the higher the price, the greater the demand, as the high price itself becomes an attraction, symbolizing the buyer's social status and wealth. In contrast, Giffen goods also have an upward-sloping demand curve but are necessities with no readily available substitutes.
Case Studies
A typical example is Rolex watches. Rolex is renowned for its high prices and exceptional craftsmanship, and many people purchase Rolex not just for timekeeping but to showcase their social status. Another example is Ferrari sports cars, whose high prices and limited production make them symbols of wealth and status, attracting affluent consumers.
Common Issues
When considering Veblen goods, investors often question how to discern the real value of a product from its symbolic value. A common misconception is that all high-priced goods are Veblen goods, but in reality, only those goods that become more attractive because of their price fit this definition.
