Definition of Veblen good

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 named after the American economist and sociologist Thorstein Veblen who observed the desire for luxury living and coined the phrase conspicuous consumption in his paper The Theory of the Leisure Class published in 1899. Veblen goods are not to be confused with Giffen goods which also rise in demand as they grow more expensive. Far from being luxury items Giffen goods tend to be staple food items, the increased demand for which is fuelled by poverty.

 

Veblen goods in the news

In January 2010 a writer drew parallels between Veblen goods – such as designer handbags which no one would want if they were discounted in price –and services such as lawyers (people don't tend to want to pick the cheapest lawyer). However, in the financial system she said, the reverse was true and the driving quest was for cheaper prices, rather than better quality.

In October 2013 a reader wrote a letter to the editor of the FT speaking of the notion that expensive Japanese fruits, meats and grains might start flooding world markets. She said if the world was already awash with European luxury brands in fashion, cosmetics and automobiles that can be characterised as Veblen goods, where demand increases as prices increases, why not add luxury foods from Japan.

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