Veblen Goods and Conspicuous Consumption

by | Dec 4, 2018


Brands convey more than just the identity of the manufacturer. Brands can convey a feeling and also status.

The “Law of Demand” states that the quantity purchased of an item varies inversely with price (so long as all other factors are constant). Thus, if  Trader Joe’s lowers the price of bananas from 29¢ to 19¢ each, the amount of bananas sold should increase. The inverse holds true as well.

There are a few exceptions to the law of demand, a notable one being “Veblen Goods” named after economist Thorstein Veblen who coined the phrase “conspicuous consumption” in his 1899 book The Theory of the Leisure Class. The Financial Times defines a Veblen Good as follows:

A Veblen good is a luxury item whose price does not follow the usual laws of supply and demand. Usually, the higher the price of a particular good the less people will want it. For luxury goods, such as very expensive wines, watches or cars, however, the item becomes more desirable as it grows more expensive and less desirable should it drop in price.


Veblen Goods are typically luxury items and are desired because they confer status and exclusivity. Some examples of Veblen Goods:

This t-shirt (20th anniversary Supreme) sells for $1,200
The iconic Gucci handbag
Gold Rolex Daytona

A key for Veblen goods is that they typically have a limited availability and do not wholesale/discount their unsold products. If they become widely consumed or lesser priced they lose their specialness. You will not find Cartier or Louis Vutton at closeout stores such as Marshall’s, Norstrom Rack or the like. The price must be kept high in order to convey status.

Thorstein Veblen viewed the world in two parts: the “haves” and the “have nots” and his theory is that the haves buy luxury goods to flaunt their status and the have nots desire luxury goods to gain status. A very interesting research paper from USC proposes some nuance to the concept of Veblen Goods and the two categories of “haves” and “have nots.”

The USC paper uses four classifications based on the factors of wealth and the need for status.

  1. High wealth and little need to show status (think old money/establishment). They are very rich but prefer to avoid obvious signals of wealth. Instead, they utilize very subtle wealth signals to other establishment members to display their social status.
  2. High wealth and high need to show status (think “new money” and “climbers”). These people are drawn towards Veblen goods to signal their wealth and status.
  3. Lower wealth and high need to show status. These people do not have the wealth to afford luxury Veblen goods, but desire them and the status they convey. They will tend to buy fake or used luxury items and/or buy a few Veblen Goods they may not be able to afford (think of someone who is of middling income who leases a luxury car and buys a Rolex to signal wealth and status above their means).
  4. Lower wealth and low need to show status. These people have no desire to signal status with goods. They focus on the utilitarian aspects of goods.

An interesting finding of the USC paper is that really expensive goods often have less brand prominence than less expensive versions of the same brand. For instance, the most expensive Gucci and Chanel handbags  have less conspicuous branding whereas the less expensive bags of the same brand had more obvious branding. Similarly, a study of Mercedes cars found the size of the Mercedes emblem was inversely related to the cost of the car (the cheaper the Mercedes the bigger the tri-star emblem). From the paper:

A woman who sports a Gucci “new britt” hobo bag ($695) signals something much different about her social standing than a woman carrying a Coach “ali signature” hobo ($268). The brand, displayed prominently on both, says it all. Coach, known for introducing “accessible luxury” to the masses doesn’t compare in most people’s minds in price and prestige with Italian fashion house Gucci.

But what inferences are made regarding a woman seen carrying a Bottega Veneta hobo bag ($2,450)? Bottega Veneta’s explicit “no logo” strategy (bags have the brand badge on the inside) makes the purse unrecognizable to the casual observer and identifiable only to those in the know.

Thus, the USC paper posits that the highest class in America is less concerned with conspicuous consumption but rather subtly buys quality goods to signal horizontally to members of their own class. Interesting concept.

1 Comment

  1. Hmmmm, kind of like a custom suit. Not something most people would recognize…


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