What Is The Veblen Effect
                     WHAT IS THE VEBLEN EFFECT?
• The Veblen Effect is the positive impact of the 
price of a commodity on the quantity 
demanded of that commodity. 
• It is named after American economist and 
sociologist Thorstein Veblen, who studied the 
phenomenon of conspicuous consumption in 
the late 19th century.
The 
Veblen 
Effect
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• The increase in demand for a Veblen good 
reflects consumer tastes and preferences, 
unlike a Giffen good, a Veblen good is where 
higher demand is directly attributable to the 
price increase. 
Understand
ing a 
Veblen 
Good
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Behavioral 
Impact of a • Studies indicate that people are happier and receive more utility 
with the purchase of a Veblen good. 
Veblen • This is a result of the good making 
Good the individual feel more exclusive and important, with the knowledge 
that they are purchasing something 
of high quality that is out of reach 
for others. 
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• Sometimes, when a good is priced high, an individual 
will automatically assume it to be of better quality, 
when in fact it is not necessarily so. 
• Many companies source or produce their goods in the 
same regions or factories, but because of marketing 
Behavioral and brand identity, some are sold at a premium.
Impact of a 
Veblen Good 
Cont.
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• Consumers want to use exclusive items where 
price reflects quality, style, good breeding, 
culture, etc. Consumers prefer an item 
because it is different from those commonly 
preferred.
 Snob Effect
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REASONS FOR THE 
VEBLEN EFFECT
• In Veblen’s analysis of conspicuous consumption, 
the economist noted that for certain luxury goods 
and services, a higher price was often associated 
with the perception of higher quality. 
• Therefore, a price increase was seen as evidence of 
the producer improving quality.
Percepti
on of 
quality
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• Veblen goods are often positional goods. The 
quantity demanded of a positional good depends 
on how the good is distributed in society. 
• Veblen goods often exhibit a negative positional 
effect, i.e., the quantity demanded of a Veblen 
good increases with a reduction in the 
distribution of the good.
Positiona
l goods
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• Giffen goods are another class of goods that do 
not strictly follow the law of demand. 
• Unlike Veblen goods, which violate the law of 
demand after prices rise above a certain level, 
Giffen goods violate the law of demand until prices 
rise above a certain level.
Veblen 
Goods vs. 
Giffen 
Goods
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