Veblen Good - Related Concepts

Related Concepts

The Veblen effect is one of a family of theoretically possible anomalies in the general theory of demand in microeconomics. Other related effects include:

• The snob effect: preference for goods because they are different from those commonly preferred; in other words, for consumers who want to use exclusive products, price is quality.
• The bandwagon effect: preference for a good increases as the number of people buying them increases.

These effects are discussed in a classic article by Leibenstein (1950). The concept of the counter-Veblen effect is less well known, although it logically completes the family.

None of these effects in itself predicts what will happen to actual quantity of goods demanded (the number of units purchased) as prices change—they refer only to preferences or propensities to purchase. The actual effect on quantity demanded will depend on the range of other goods available, their prices, and their substitutabilities for the goods concerned. The effects are anomalies within demand theory because the theory normally assumes that preferences are independent of price or the number of units being sold. They are therefore collectively referred to as interaction effects.

The interaction effects are a different kind of anomaly from that posed by Giffen goods. The Giffen goods theory is one for which observed demand rises as price rises, but the effect arises without any interaction between price and preference—it results from the interplay of the income effect and the substitution effect of a change in price.

Recent research has begun to examine the empirical evidence for the existence of goods which show these interaction effects. The Yale Law Journal has published a broad overview. Studies have also found evidence suggesting people receive more pleasure from more expensive goods.