What is the Veblen effect?
Normally, higher prices reduce demand (the law of demand). With the Veblen effect, a higher price makes a good more desirable because owning it displays wealth. It is named after Thorstein Veblen, whose 1899 *The Theory of the Leisure Class* analysed conspicuous consumption; Harvey Leibenstein (1950) formalised it alongside snob and bandwagon effects.
📌 At a glance
- Named after
- Thorstein Veblen (1899)
- Formalised by
- Harvey Leibenstein (1950)
- Key idea
- Price itself is a status signal
- Examples
- Luxury handbags, watches, prestige cars
Comparison
| Effect | Why demand rises | |
|---|---|---|
| Veblen | The high price signals status | |
| 스놉 효과 | Snob | The good is rare; demand falls as more people buy it |
| 밴드왜건 효과 | Bandwagon | Many others are buying it |
| 기펜재 | Giffen good | Poor consumers buy more of a staple due to the income effect |
Frequently asked questions
- What is the Veblen effect?
- A situation where demand for a good rises as its price rises because the price signals status.
- How is it different from the snob effect?
- The Veblen effect responds to high price; the snob effect responds to exclusivity, regardless of price.
References
- Veblen, T. (1899). The theory of the leisure class: An economic study of institutions. Macmillan.
- Leibenstein, H. (1950). Bandwagon, snob, and Veblen effects in the theory of consumers’ demand. Quarterly Journal of Economics, 64(2), 183–207.