Information about Veblen good

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

A bottle of Louis Roederer Cristal (1993)

Commodities are Veblen goods if people's preference for buying them increases as a direct function of their price.

It is claimed that some types of high-status goods, such as expensive wines or perfumes, 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 further preferable. The Veblen effect is named after the economist Thorstein Veblen, who first pointed out the concepts of conspicuous consumption and status-seeking.^[1]

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;
the bandwagon effect: preference for a good increases as the number of people buying them increases (see network externality);
the counter-Veblen effect, in which preference for goods increases as their price falls.

The first two of these, and the Veblen effect, are discussed in a classic article by Leibenstein (1950).^[2] The concept of the counter-Veblen effect is less well known, although it logically completes the family.^[3]

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.^[4] A broad overview can be found in ^[5].

References

1. ^ Veblen, T. B. (1899). The Theory of the Leisure Class. An Economic Study of Institutions. London: Macmillan Publishers.
2. ^ Leibenstein, H. (1950). Bandwagon, Snob, and Veblen Effects in the Theory of Consumers’ Demand. Quarterly Journal of Economics, 64, 183–207.
3. ^ Lea, S. E. G., Tarpy, R. M., & Webley, P. (1987). The individual in the economy. Cambridge: Cambridge University Press. ISBN 0-521-26872-9
4. ^ e.g. Chao, A., & Schor, J. B. (1998). Empirical tests of status consumption: Evidence from women's cosmetics. Journal of Economic Psychology, 19, 107–131.
5. ^ e.g. McAdams, Richard H. (1992). Relative Preferences. Yale Law Journal, vol. 102, no. 1 (October), pages 1-104.

Types of goods public good - private good - common good - common-pool resource - club good - anti-rival goods rivalrous good and non-excludable good complement good vs. substitute good free good vs. scarce good, positional good (non-)durable good - intermediate good (producer good) - final good - consumer good - capital good
inferior good - normal good - ordinary good - Giffen good - luxury good - Veblen good - superior good
search good - (post-)experience good - merit good - credence good - demerit good

A good or commodity in economics is any object or service that increases utility, directly or indirectly, not to be confused with good in a moral or ethical sense (see Utilitarianism and consequentialist ethical theory).
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Wine is an alcoholic beverage made from the fermentation of grape juice.^[1] The natural chemical balance of grapes is such that they can ferment without the addition of sugars, acids, enzymes or other nutrients.
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Perfume is a mixture of fragrant essential oils and aroma compounds, fixatives, and solvents used to give the human body, objects, and living spaces a pleasant smell.

Describing a perfume

The precise formulas of commercial perfumes are kept secret.
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Thorstein Bunde Veblen (born Tosten Bunde Veblen July 30, 1857 – August 3, 1929) was a Norwegian-American sociologist and economist and a founder, along with John R. Commons, of the Institutional economics movement.
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Conspicuous consumption is a term used to describe the lavish spending on goods and services that are acquired mainly for the purpose of displaying income or wealth. In the mind of a conspicuous consumer, such display serves as a means of attaining or maintaining social status.
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Social status is the honor or prestige attached to one's position in society (one's social position). The stratification system, which is the system of distributing rewards to the members of society, determines social status.
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supply and demand describe market relations between prospective sellers and buyers of a good. The supply and demand model determines price and quantity sold in the market.
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Microeconomics (or price theory) is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources,^[1] typically in markets where goods or services are being bought and sold.
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The snob effect refers to the desire to own exclusive or unique goods. These goods usually have a high economic value, but low practical value. The less of an item available, the higher its snob value.
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The bandwagon effect is the observation that people often do (or believe) things because many other people do (or believe) the same. The effect is often pejoratively referred to as herding instinct, particularly as applied to adolescents.
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A network effect is a characteristic that causes a good or service to have a value to a potential customer which depends on the number of other customers who own the good or are users of the service.
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A Giffen good is an inferior good for which a rise in its price makes people buy even more of the product as a consequence of the income effect. Evidence for the existence of Giffen goods is limited, but there is an economic model that explains how such a thing could exist.
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Macmillan Publishers Ltd, also known as The Macmillan Group, is a privately-held international publishing company owned by Georg von Holtzbrinck Publishing Group. It has offices in 41 countries worldwide and operates in more than thirty others.
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Cambridge University Press (known colloquially as CUP) is a publisher given a Royal Charter by Henry VIII in 1534, and one of the two privileged presses (the other being Oxford University Press).
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public good is a good that is non-rival and non-excludable. This means that consumption of the good by one individual does not reduce the amount of the good available for consumption by others; and no one can be effectively excluded from using that good.
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A private good is defined in economics as a good that exhibits these properties:

Excludable - it is reasonably possible to prevent a class of consumers (e.g. those who have not paid for it) from consuming the good.

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For the philosophical term, see .

In economics the term common good is used to refer to rivalrous and non-excludable goods. One of the most common ways of looking at goods in economics, illustrated in the table below, is the classic division based
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A common-pool resource (CPR), alternatively termed a common property resource, is a particular type of good consisting of a natural or human-made resource system, the size or characteristics of which makes it costly, but not impossible, to exclude potential beneficiaries
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Club goods (also known as collective goods) are a type of good in economics, sometimes classified as a subtype of public goods that are excludable but non-rivalrous, at least until reaching a point where congestion occurs.
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In economics, a good is considered either rivalrous (rival) or nonrival. Rival goods are goods whose consumption by one consumer prevents simultaneous consumption by other consumers. Most goods, both durable and nondurable, are rival goods. A hammer is a durable rival good.
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Excludability is defined in economics as whether or not it is possible to exclude people who have not paid for a good or service from consuming it. Where it is impossible to prevent an individual who does not pay for that thing from enjoying the benefits of it, the good is termed
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A complementary good or complement good in economics is a good which is consumed with another good; its cross elasticity of demand is negative. This means that, if goods A and B were complements, more of good A being bought would result in more of good B also being bought.
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In economics, one kind of good (or service) is said to be a substitute good for another kind insofar as the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses.
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The free good is a term used in economics to describe a good that is not scarce. A free good is available in as great a quantity as desired with zero opportunity cost to society.

A good that is made available at zero price is not necessarily a free good.
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In economics, scarcity is defined as the condition of human wants and needs exceeding production possibilities. In other words, society does not have sufficient productive resources to fulfill those wants and needs.
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Positional goods are products and services whose value is mostly, if not exclusively, a function of their ranking in desirability in comparison to substitutes. The extent to which a good's value depends on such a ranking is referred to as its positionality.
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In economics, a durable good or a hard good is a good which does not quickly wear out, or more specifically, it yields services or utility over time rather than being completely used up when used once. Most goods are therefore durable goods to a certain degree.
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Intermediate goods or producer goods are goods used as inputs in the production of other goods, such as partly finished goods or raw materials. A firm may make then use intermediate goods, or make then sell, or buy then use them.
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Veblen Good

Related concepts

References

Describing a perfume