Veblen good

Luxury cars are often stated to be desirable due to their price, which generates
a certain amount of status. As a result it is argued that luxury cars are Veblen
goods.

Paul Wall's jeweled dental grill. Some of Wall's grills cost nearly $30,000.

In economics, Veblen goods are a group of commodities for which peoples'

preference for buying them increases as a direct function of their price, as
greater price confers greater status, instead of decreasing according to the law
of demand.

Some types of high-status goods, such as high-end wines, designer handbags and luxury cars, are Veblen goods, in that
decreasing their prices decreases people's preference for buying them because they are no longer perceived as exclusive
or high status products. Similarly, a price increase may increase that high status and perception of exclusivity, thereby
making the good even more preferable. The Veblen effect is named after the economist Thorstein Veblen, who first
pointed out the concepts of conspicuous consumption and status-seeking.

Related concepts

The Veblen effect is one of a family of theoretically possible anomalies in the general theory of demand in
microeconomics. Other related effects include:

the snob effect: preference for goods because they are different from those commonly preferred; in other
words, for consumers who want to use exclusive products, price is quality;
the bandwagon effect: preference for a good increases as the number of people buying them increases (see
network externality);

These effects are discussed in a classic article by Leibenstein (1950). The concept of the counter-Veblen effect is less well
known, although it logically completes the family.

None of these effects in itself predicts what will happen to actual quantity of goods demanded (the number of units
purchased) as prices change—they refer only to preferences or propensities to purchase. The actual effect on quantity
demanded will depend on the range of other goods available, their prices, and their substitutabilities for the goods
concerned. The effects are anomalies within demand theory because the theory normally assumes that preferences are
independent of price or the number of units being sold. They are therefore collectively referred to as interaction effects.

The interaction effects are a different kind of anomaly from that posed by Giffen goods. The Giffen goods theory is one
for which observed demand rises as price rises, but the effect arises without any interaction between price and
preference—it results from the interplay of the income effect and the substitution effect of a change in price.

Recent research has begun to examine the empirical evidence for the existence of goods which show these interaction
effects. The Yale Law Journal has published a broad overview. Studies have also found evidence suggesting people
receive more pleasure from more expensive goods.