Sociology Index

VEBLEN EFFECTS

Thorsten Veblen was the first to identify the concepts of conspicuous consumption and status-seeking in 1899. The term, Conspicuous Consumption, as used by Thorsten Veblen, conveys the idea of a society where social status is earned and displayed by patterns of consumption and consumer culture, rather than by what an individual does or makes. The theory of 'Veblen effects' arise from the desire to achieve social status by signaling wealth through conspicuous consumption. The Veblen effect is a theoretical anomaly in the general theory of demand in microeconomics. Preference for exclusive goods is because they are different from those commonly preferred is the snob effect, similar to veblen effect. Veblen Effects arise from the desire to achieve social status by signaling wealth through symbolic communication. Other related concepts to Veblen Effects include Counter-Veblen Effect, Symbolic Communications and Inconspicuous Consumption.

Veblen effect is generally caused by the belief that higher price means higher quality. Veblen effect is also caused by the desire for conspicuous consumption of an expensive, prestige good.The Veblen effect belongs to a family of theoretically possible anomalies in the general theory of demand. There is also a concept of counter-Veblen effect. In Giffen Good, higher price leads to higher demand but for different reason to Veblen good. Demand rises with higher price because the income effect of higher price outweighs the substitution effect. When preference for a good increases as the number of people buying them increases, we call it the bandwagon effect, again similar to veblen effect.

Leibenstein (1950), has discussed these effects in an article titled 'Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand' - Quarterly Journal of Economics 64 (2).

Steiner, Robert L. and Weiss, Joseph (1951), Veblen Effects Revisited in the Light of Counter-Snobbery, Journal of Aesthetics and Art Criticism, 9, 263-268.

Successful brands rely on supplementing consumer experience with a range of Veblen goods, in which the demand for Veblen goods such an Apple iPhone increases even if the unit price increases, as you pay a premium for the status conferred to you through its ownership and consumption.

Veblen Effects in a Theory of Conspicuous Consumption - Bagwell, Laurie Simon, Bernheim, B Douglas.
The authors examine conditions under which Veblen Effects arise from the desire to achieve social status by signaling wealth through conspicuous consumption. While Veblen effects cannot ordinarily arise when preferences satisfy a 'single-crossing property,' they may emerge when this property fails. In that case, 'budget' brands are priced at marginal cost, while 'luxury' brands, though not intrinsically superior, are sold at higher prices to consumers seeking to advertise wealth. The authors explore factors that induce Veblen effects and they investigate policy implications.