Veblen Goods: When Luxury Sells Better at Higher Prices

Since we talked about Giffen Goods yesterday, let’s talk about its long distance cousin Veblen Goods. You ever walked past a Gucci or Rolex store and ask yourself, why on earth do people pay thousands of dollars for designer handbags, luxury watches, or limited-edition sneakers? Logic would suggest that if something is too expensive, fewer people would buy it, but we’re past that. We’ve learned that is not always the case. So what happens in the case of Veblen goods is the higher prices actually make these products more desirable. The desirability comes from our separation of social status, need for exclusivity, and our naturally built desire to signal wealth.

Veblen goods are named after economist Thorstein Veblen, who introduced the concept of “conspicuous consumption” (buying to impress in layman terms) in his 1899 book The Theory of the Leisure Class. He observed that some people purchase expensive goods not because they are better, but because they are expensive. So, yes, your very logical question of my 10 bucks watch tells the same time is completely sensible. It is the high price itself that becomes part of the appeal, serving as a status symbol that signals wealth, exclusivity, and prestige. In other words, a $5,000 handbag isn’t just a handbag—it’s a statement that tells everyone you are loaded.

This phenomenon is common in luxury markets, where demand for a product increases as its price rises. Think about luxury cars like Rolls-Royce, or our previous examples of Rolex and Gucci. If these brands were to lower their prices significantly, they might actually lose customers because when everyone can buy it, it’s not got the value it used to.The psychology behind Veblen goods reveals how economics isn’t just about numbers—it’s also about human behavior, perception, and social influence. It explains why high-end brands carefully maintain their image and pricing strategy, ensuring that their products remain expensive enough to be desirable. So next time you see a luxury item with a hefty price tag, remember: sometimes, the price is the product.