veblen good

Veblen goods are named after American economist Thorstein Veblen, who first identified conspicuous consumption as a mode of status-seeking (i.e., keeping up with the Joneses{{Cite journal|last1=Banuri|first1=Sheheryar|last2=Nguyen|first2=Ha|date=2020|title=Borrowing to Keep Up (With the Joneses): Inequality, Debt, and Conspicuous Consumption|url=https://www.ssrn.com/abstract=3721084|journal=SSRN Electronic Journal|language=en|doi=10.2139/ssrn.3721084|issn=1556-5068|hdl=10986/34351|s2cid=233752235|hdl-access=free}}) in The Theory of the Leisure Class (1899).Veblen, T. B. (1899). The Theory of the Leisure Class. An Economic Study of Institutions. London: Macmillan Publishers. The testability of this theory was questioned by Colin Campbell due to the lack of complete honesty from research participants.{{Cite book|title=The Romantic Ethic and the Spirit of Modern Consumerism {{!}} SpringerLink|year=2018|url=https://link.springer.com/content/pdf/10.1007/978-3-319-79066-4.pdf|language=en-gb|doi=10.1007/978-3-319-79066-4|last1=Campbell|first1=Colin|isbn=978-3-319-79065-7}} However, research in 2007 studying the effect of social comparison on human brains can be used as an evidence supporting Veblen.{{Cite journal|last1=Fliessbach|first1=K.|last2=Weber|first2=B.|last3=Trautner|first3=P.|last4=Dohmen|first4=T.|last5=Sunde|first5=U.|last6=Elger|first6=C. E.|last7=Falk|first7=A.|date=2007-11-23|title=Social Comparison Affects Reward-Related Brain Activity in the Human Ventral Striatum|url=https://www.science.org/doi/10.1126/science.1145876|journal=Science|language=en|volume=318|issue=5854|pages=1305–1308|doi=10.1126/science.1145876|pmid=18033886|bibcode=2007Sci...318.1305F|s2cid=44951330|issn=0036-8075}} The idea that seeking status can be an incentive to spend was also later discussed by Fred Hirsch.{{Cite book|last=Hirsch|first=Fred|url=https://www.degruyter.com/document/doi/10.4159/harvard.9780674497900/html|title=Social Limits to Growth|date=2013-10-01|publisher=Harvard University Press|isbn=978-0-674-49790-0|language=en|doi=10.4159/harvard.9780674497900}}

Additionally, there have been different arguments on whether Veblen’s theory applies only to luxury goods or all goods.{{Cite journal|last1=Phillips|first1=Ronnie J.|last2=Slottje|first2=Daniel J.|date=1983-03-01|title=The Importance of Relative Prices in Analyzing Veblen Effects|url=https://doi.org/10.1080/00213624.1983.11504096|journal=Journal of Economic Issues|volume=17|issue=1|pages=197–206|doi=10.1080/00213624.1983.11504096|issn=0021-3624}}{{Cite thesis|title=Economic Experiments in Honor of Thorstein Veblen|url=https://www.theses.fr/2019BORD0075|publisher=Bordeaux|date=2019-06-03|degree=These de doctorat|first=Robin|last=Goldstein}}

File:Demand curve of Veblen goods.png

A corollary of the Veblen effect is that lowering the price may increase the demand at first,{{Cite journal|last1=Bagwell|first1=Laurie Simon|last2=Bernheim|first2=B. Douglas|date=1996|title=Veblen Effects in a Theory of Conspicuous Consumption|url=https://www.jstor.org/stable/2118201|journal=The American Economic Review|volume=86|issue=3|pages=349–373|jstor=2118201|issn=0002-8282}} but will decrease the quantity demanded afterwards.{{cite book| author = John C. Wood| title = Thorstein Veblen: Critical Assessments| year = 1993| publisher = Psychology Press| isbn = 978-0-415-07487-2 }}

The following concepts can explain the existence of Veblen goods:

• Pecuniary emulation (or pecuniary success), which leads to invidious comparison (or invidious distinction).{{Cite book|author=Rae, John|url=http://worldcat.org/oclc/1083987505|title=The sociological theory of capital : being a complete reprint of the new principles of political economy, 1834|date=1905|publisher=Macmillan|isbn=0-659-91292-9|oclc=1083987505}}
• Relative consumption trap.{{Citation |last=Eaton |first=B. Curtis |title=Veblen Goods |work=The New Palgrave Dictionary of Economics, 2012 Version |pages=14276–14278 |year=2012 |place=Basingstoke |publisher=Palgrave Macmillan |doi=10.1057/978-1-349-95189-5_2321 |isbn=978-1-137-33658-3}}
• The inverse relationship between one’s well-being with another’s income.
• The suppression of explicit attempts to emphasize social status differences.{{Cite journal|last=Sheff|first=Jeremy N|date=2011|title=Veblen Brands|journal=Minnesota Law Review|volume=96|pages=769}}

The theory of Veblen good made a significant contribution towards marketing and advertising. There are multiple studies considering Veblen goods as a tool to develop and maintain a strong relationship with consumers.{{Cite book|last=Piong|first=Chee|url=http://worldcat.org/oclc/900552999|title=Starbucks coffee as a Veblen good : perceived status enhancement, brand involvement, and brand loyalty|oclc=900552999}}

While Veblen goods are more affordable for high income households and affluent societies are usually known as the targeted income groups of Veblen brands, they have been experiencing a trend away from conspicuous consumption.{{Cite book|last=Currid-Halkett|first=Elizabeth|url=http://dx.doi.org/10.1515/9781400884698|title=The Sum of Small Things: Culture and Consumption in the 21st Century|date=2017-05-15|publisher=Princeton University Press|doi=10.1515/9781400884698|isbn=978-1-4008-8469-8}}Canterbery, E. R. (1998). {{Cite book|date=2002-01-08|chapter-url=http://dx.doi.org/10.4324/9780203021927-14|title=The Founding of Institutional Economics|pages=151–168|publisher=Routledge|doi=10.4324/9780203021927-14|isbn=978-0-203-02192-7|access-date=2021-04-23|chapter=The Theory of the Leisure Class and the Theory of Demand}}  

Being aware of the existence of Veblen goods, concerns were raised regarding their wastefulness{{Cite journal|last1=Hopkins|first1=Ed|last2=Kornienko|first2=Tatiana|date=2004|title=Running to Keep in the Same Place: Consumer Choice as a Game of Status|url=https://www.aeaweb.org/articles?id=10.1257/0002828042002705|journal=American Economic Review|language=en|volume=94|issue=4|pages=1085–1107|doi=10.1257/0002828042002705|issn=0002-8282|hdl=20.500.11820/6fdf6159-96b0-415b-a7b5-bb95caa924be|hdl-access=free}}{{Cite journal|last=Frank|first=Robert H.|date=1985|title=The Demand for Unobservable and Other Nonpositional Goods|url=https://www.jstor.org/stable/1812706|journal=The American Economic Review|volume=75|issue=1|pages=101–116|jstor=1812706|issn=0002-8282}} as they are viewed as deadweight loss.{{Cite journal|date=2013-07-01|title=Resource allocation, affluence and deadweight loss when relative consumption matters|url=https://www.sciencedirect.com/science/article/abs/pii/S0167268113001066|journal=Journal of Economic Behavior & Organization|language=en|volume=91|pages=159–178|doi=10.1016/j.jebo.2013.04.011|issn=0167-2681|last1=Eaton|first1=B. Curtis|last2=Matheson|first2=Jesse A.}} Consuming Veblen goods also results in other financial and social consequences such as conspicuous demonstration of unequal wealth distribution and possible changes to optimal tax formulas.{{Cite journal|date=2008-06-01|title=When the Joneses' consumption hurts: Optimal public good provision and nonlinear income taxation|url=https://www.sciencedirect.com/science/article/abs/pii/S0047272707002083|journal=Journal of Public Economics|language=en|volume=92|issue=5–6|pages=986–997|doi=10.1016/j.jpubeco.2007.12.007|issn=0047-2727|last1=Aronsson|first1=Thomas|last2=Johansson-Stenman|first2=Olof}}{{Cite book|last1=Tanninen|first1=Hannu|url=https://trepo.tuni.fi/handle/10024/65717|title=Work Hours, Inequality and Redistribution: Veblen Effects Reconsidered|last2=Tuomala|first2=Matti|date=2008|publisher=Tampereen yliopisto|isbn=978-951-44-7584-9|language=en}} Another negative outcome is that this type of consumption can be a culprit of the future exacerbation of pollution.{{Cite journal|date=2017-04-01|title=Income Inequality and Carbon Emissions in the United States: A State-level Analysis, 1997–2012|url=https://www.sciencedirect.com/science/article/abs/pii/S0921800916308345|journal=Ecological Economics|language=en|volume=134|pages=40–48|doi=10.1016/j.ecolecon.2016.12.016|issn=0921-8009|last1=Jorgenson|first1=Andrew|last2=Schor|first2=Juliet|last3=Huang|first3=Xiaorui|bibcode=2017EcoEc.134...40J }}

Nonetheless, one exception is ethical consumers interested in virtue signaling through their consumption of goods and services.{{Cite journal|last1=Stiefenhofer|first1=Pascal|last2=Zhang|first2=Wei|date=2020-11-30|title=Conspicuous ethics: a Veblen effect condition for ethical consumption goods|url=https://doi.org/10.1080/13504851.2020.1855306|journal=Applied Economics Letters|volume=29 |pages=72–74|doi=10.1080/13504851.2020.1855306|s2cid=229451267|issn=1350-4851}} Veblen goods targeting this market segment must also be ethically manufactured to increase in their quantity demanded.

Image:ROEDERER BOUTEILLE+COFFRET CRISTAL BRUT 2007 750ML V2 RVB.jpg is an example of a consumable Veblen good.{{cite web|url=http://news-service.stanford.edu/pr/2008/pr-wine-011608.html|title=Price tag can change the way people experience wine, study shows|website=news-service.stanford.edu|date=2008-01-15}}]]

The Veblen effect is one of a family of theoretical anomalies in the general law of demand in microeconomics. Related effects include:

File:RolexDaytona.jpg frequently sells for over its list price]]

• The snob effect: expressed preference for goods because they are different from those commonly preferred; in other words, the demand for a certain good by individuals of a higher income level is inversely related to its demand by those of a lower income level.{{cite book| last1 = Galatin| first1 = M.| last2 = Leiter| first2 = Robert D.| title = Economics of Information| year = 1981| publisher = Martinus Nijhoff| location = Boston| isbn = 978-0-89838-067-5| pages = [https://archive.org/details/economicsofinfor0000unse_e0f1/page/25 25–29]| url = https://archive.org/details/economicsofinfor0000unse_e0f1/page/25}}
• The common law of business balance: the low price of a good is believed by many to indicate that the producer may have compromised quality, that is, "you get what you pay for".
• The hot-hand fallacy: stock buyers have fallen prey to the fallacy that previous price increases suggest future price increases.

{{cite journal|last=Johnson|first=Joseph|author2=Tellis, G.J. |author3=Macinnis, D.J. |title=Losers, Winners, and Biased Trades|journal=Journal of Consumer Research|year=2005|volume=2|issue=32|pages=324–329|doi=10.1086/432241|s2cid=145211986}} Other rationales for buying a high-priced stock are that previous buyers who bid up the price are proof of the issue's quality, or conversely, that an issue's low price may be evidence of viability problems.

Sometimes, the value of a good increases as the number of buyers (or particular group of buyers and users) increases. This is called the bandwagon effect when it depends on the psychology of buying a product because it seems popular, or the network effect when numerous buyers or users itself increases the value of a good. For example, as the number of people with telephones or Facebook accounts increased, the value of having a telephone or a Facebook account increased, because users of those could reach more people. However, neither of these effects suggests that raising the price would boost demand at a given level of saturation.

Veblen effects are discussed in a 1950 article by economist Harvey Leibenstein.{{cite journal |last=Leibenstein |first=Harvey |year=1950 |title=Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand |journal=Quarterly Journal of Economics |volume=64 |issue=2 |pages=183–207 |doi=10.2307/1882692 |jstor=1882692 }} Counter-examples have been called the counter-Veblen effect.{{cite book| last1 = Lea| first1 = S. E. G.| last2 = Tarpy| first2 = R. M.| last3 = Webley| first3 = P.| title = The individual in the economy| url = https://archive.org/details/individualinecon00leas| url-access = registration| year = 1987| publisher = Cambridge University Press| location = Cambridge| isbn = 978-0-521-26872-1 }} The counter-Veblen effect occurs when preference for goods increases with the decrease in their price, thereby outperforming the supply and demand effect, as a result of conspicuous thrift amongst some consumers.

The effect on demand depends on the range of other goods available, their prices, and whether they serve as substitutes for the goods in question. 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.{{cite journal |last1=Chao |first1=A. |last2=Schor |first2=J. B. |year=1998 |title=Empirical tests of status consumption: Evidence from women's cosmetics |journal=Journal of Economic Psychology |volume=19 |issue=1 |pages=107–131 |doi=10.1016/S0167-4870(97)00038-X }}{{cite journal |last=McAdams |first=Richard H. |year=1992 |title=Relative Preferences |journal=Yale Law Journal |volume=102 |issue=1 |pages=1–104 |jstor=796772 |doi=10.2307/796772 }}

Interaction effects are a different kind of anomaly from that posed by Giffen goods. The Giffen goods theory is one for which observed quantity demanded rises as price rises. Still, 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 price change.

• Choice-supportive bias
• Commodity fetishism
• Consumer surplus
• Normal good
• Inferior good
• Easterlin paradox
• Giffen good

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{{Thorstein Veblen}}

{{Goodtypes}}

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{{wealth}}

Category:Consumer theory

Category:Goods (economics)

Category:Institutional economics

good, Veblen