What Is a Veblen Good? Veblen Goods and the Law of Demand

A Veblen good is a good for which demand increases as its price increases. Veblen goods get their name from Norwegian-American economist Thorstein Veblen who’s best known for introducing the concept of conspicuous consumption (the display of wealth as a means of acquiring or securing social status). Most consumer goods have a downward-sloping demand curve because consumer demand goes down as prices rise. However, a Veblen good has an upward-sloping demand curve because its higher price indicates its potency as a status symbol, a phenomenon known as the Veblen effect.

Veblen goods are usually high-quality, designer, or luxury goods that typical retailers do not sell. Veblen goods include luxury cars, yachts, private jets, designer handbags, expensive jewelry, and designer clothing. The Veblen effect is similar to other theoretical anomalies from the world of microeconomics, including the snob effect, which occurs when consumers desire luxury items based on their exclusivity, and the bandwagon effect, which occurs when consumers purchase a product because it appears popular.

Veblen goods directly contradict the law of demand, which states that the quantity of a product demanded has an inverse relationship with its price tag. When the price of a Veblen good increases, it becomes more desirable to status-conscious consumers. If the price of a Veblen good decreases, it loses its appeal as a luxury item and may still be too expensive for the average consumer.

Veblen goods are sometimes confused with Giffen goods. Both these types of goods violate the law of demand by selling more as prices rise. However, a critical distinction sets these goods apart: Veblen goods are luxury items, while Giffen goods are inferior goods for which no close substitutes exist. Consumers in the market for a Veblen good maintain a high level of purchasing power because they could choose to buy a luxury item with a slightly lower price tag if they had to. Since there are no sufficient substitutes for Giffen goods, consumers are stuck purchasing more of the inferior goods despite their rising price. Staple food items in impoverished communities where few substitutes exist are sometimes considered Giffen goods.

For example, consider the following scenario: A household eats mostly rice and some fresh meat. In this case, rice would be considered an inferior good, and meat would be a normal good. The family determines they can buy all the rice and meat they need for a set amount of money per month. Now imagine that the price of rice goes up. To maintain the same sustenance level within their budget, the family must now spend more of their money on rice and less on meat; since rice is a less-expensive staple food than meat, they’ll then offset the decrease in meat by buying more rice.

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