What is a Veblen good?

Have you heard of a "Veblen good" (Boyle, 2024, 1:50)? I hadn't until late last year. A Veblen good is one which, despite an increasing and eye-watering price, the demand remains high, or goes even higher, resulting in an upward-sloping demand curve... in an apparent contradiction of the law of demand (Boyle, 2024; Veblen, 1899). Think Hermès Birkin bags; Michael Jordan sneakers still unworn in their boxes; vintage bottles of wine; rare coins; bitcoin; high-end watches.

Veblen appeared to think that "modern business elites [...] distort and waste the benefits of technology in order to slake [the consumer thirst] for ever-increasing power and status" (Plotkin, 2015). This leads to another Veblen construction: "conspicuous consumption" - and how fabulous that this idea was coined and formalised in one of Veblen's most noted works, way back in 1899 during the gilded age. Conspicuous consumption is "the competitive and extravagant consumption practices and leisure activities that aim to indicate membership to a superior social class" (Patsiaouras & Fitchett, 2011, p. 154). Veblen was an acid-tongued commentator on what he saw as a society going rotten, who "is credited with having recast ‘economics as the cultural history of material life’" (Banta, 2010, p. x). He saw the inventing engineer selflessly building better mouse-traps, then being predated upon by the "pecuniary" selling entrepreneur (p. ix). A classic hero and villain trope.

Conspicuous consumption, or "high-end, luxury retail consumption [...] is primarily associated with urban living" (Currid‐Halkett et al., 2019, p. 83). From that, I assume that by moving into cities, where we get to see what the Jones' are buying, our desires to display how wealthy we are is magnified. We learn to desire the newest, shiniest, most expensive new toy because smart people all around us already have it, and we have FOMO. And we may well put ourselves into debt to buy it, in order to look richer - higher status - than we actually are (Currid‐Halkett et al., 2019).

However, the Veblen good only works where there is product exclusivity and the item becomes a status symbol. If too many of an item appear, then the exclusivity begins to be eroded, and the good loses its appeal to the high-end purchaser.

Then we get the next trend arising. 

Sam

References:

Banta, M. (Ed.). (2010). Introduction. In T. Veblen, The Theory of the Leisure Class: An economic study of institutions (revised ed., M. Banta, Ed., pp. x-xxvi). Oxford University Press. (Original work published Macmillan & Co., Ltd., 1899

Boyle, P. (2024, October 7). Watch Market Collapse! Why Did Secondary Market Prices Fall So Much? [video]. YouTube. https://youtu.be/wpQQZQN0sXQ

Currid‐Halkett, E., Lee, H., & Painter, G. D. (2019). Veblen goods and urban distinction: The economic geography of conspicuous consumption. Journal of Regional Science, 59(1), 83-117. https://doi.org/10.1111/jors.12399

Patsiaouras, G., & Fitchett, J. A. (2012). The evolution of conspicuous consumption. Journal of historical research in marketing, 4(1), 154-176. https://doi.org/10.1108/17557501211195109

Plotkin, S. (2015, June 29). Thorstein Veblen. Oxford Biographies. https://doi.org/10.1093/OBO/9780199756384-0124

Veblen, T. (1899). The Theory of the Leisure Class: An economic study of institutions. George Allen & Unwin Ltd.