Counter-Veblen effect occurs when preference for goods increases with the fall in their price over and above the supply and demand effect as a result of conspicuous thrift amongst some consumers. ‘Cheap is good’, is called counter-veblen effect, but is a pervasive force in micro-economics.
The more something becomes cheap, the more people want it. During recession there are less veblen goods and more counter-veblen goods where lower price makes demand increase more than proportional.
In recession and periods of frugality, there are few Veblen goods, but possible many counter-Veblen goods. Veblen Effects are caused by the belief that higher price means higher quality. Veblen effect is caused by the desire for conspicuous consumption of an expensive, prestige good. Counter-Veblen effect is a less well known concept.
The decision to increase the purchase price can face the counter-Veblen effect when individuals try to avoid ostentation (Lea et al. 1987). The book market follows the bandwagon effect, and/or the counter-Veblen effect. Other related concepts to Counter-Veblen effect include Symbolic Communications, Conspicuous Consumption and Inconspicuous Consumption.
Bandwagon, Snob, and Veblen Effects in the
Theory of Consumers' Demand
H. Leibenstein. The Quarterly Journal of Economics, Volume 64, Issue 2, 1 May 1950.
Counter-examples have been called the counter-Veblen effect. Sometimes, the value of a good increases as the number of buyers or 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 a large number of buyers or users itself increases the value of a good. For example, as the number of people with telephones or Facebook increased, the value of having a telephone or being on Facebook increased, since the user could reach more people. However, neither of these effects suggests that, at a given level of saturation, raising the price would boost demand.
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 Good. 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.