What is a Veblen Good?

A veblen good refers to a good that experiences an increase in demand when the price increases. This situation takes place owing to the luxurious nature of the product. A veblen good is represented by a demand curve that slopes in an upward direction. In contrast to a giffen good that is an inferior item, a veblen good is usually a premium quality product.

• Veblen goods are those goods for which an increase in price results in an increase in demand.
• People who are wealthy and concerned about their status symbol are top customers for veblen goods.

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What makes a Veblen Good?

The high demand for veblen goods highly tells about the consumer interests and preferences as opposed to giffen goods where consumers buy more as the price increases. Thorstein Veblen, an American economist, came up with the term conspicuous consumption, and the term veblen goods got recognition after his name. Veblen goods can be found easily. However, giffen goods are the items which are not easy to recognize. Anything that is too pricey such as designer outfits, branded watches, luxury cars, etc., and that represent more self-esteem, or have a unique identity are considered to be veblen goods. The target customer base for veblen goods is wealthy people. Such goods have a powerful identity of their own, and represent class and luxury. One can find such types of goods in high-end showrooms, and not in basic department stores.

Veblen Goods: A contradiction of conventional market forces

Veblen goods go against the general law of demand that says that an increase in the price of a good will have a negative impact on its demand, or will reduce the demand. In contrast, the increase in the price of an expensive product will influence brand-conscious people to buy more of it. However, a reduction in the price of veblen goods will decrease their demand, and brand-conscious individuals will no longer be interested in buying that product. However, in spite of this price fall, veblen goods will still be expensive for other customers. Hence, the aggregate demand for veblen goods will decrease when their prices fall. There are no particular price standards that differentiate between veblen goods and normal goods. However, we can assume that the price of a veblen good is many times more than that of a normal good. For instance, while the price of a watch with reasonable quality will be up to $100, the price of a veblen good (watch in this case) will have a heavy price tag of around 4-6 digits.

Related Concepts

• Demand Theory
• Demand Curve
• Giffen Good
• Inferior Good