Veblen Goods: Why Raising the Price Makes Luxury More Desirable

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The law of demand says people buy less of something as it gets more expensive. Veblen goods break that rule. Named for Thorstein Veblen, whose 1899 book The Theory of the Leisure Class dissected the Gilded Age mansions of the Carnegies and Vanderbilts, these are products whose high price is the main feature. A luxury watch keeps the same time as a $10 pharmacy digital, yet cutting its price could send the waiting list elsewhere. Veblen called the motive pecuniary emulation, and the episode compares it to a peacock's tail: waste as proof of fitness.

From there the conversation moves into brain scanners, bonus envy, and brand strategy. It explains why a 40 percent price cut can produce a brief sales rush and then hollow out a luxury label, why loud logos are giving way to conspicuous thrift and conspicuous ethics, and why economists classify status spending as a deadweight loss. It closes by sorting Veblen goods from their cousins: the snob effect, the bandwagon effect, the hot hand fallacy, and the Giffen good.

• A 2007 MRI study led by Klaus Fliessbach found the ventral striatum lit up far more when a participant earned $60 against a peer's $30 than when both received the same reward.
• The relative consumption trap: a $5,000 bonus feels like a loss the moment you learn a coworker doing the same job got $10,000.
• Critics such as Colin Campbell long faulted Veblen's theory for resting on assumptions about motives that people will never admit to in a survey.
• The counter-Veblen effect shows up when someone brags that a complimented jacket cost six dollars at a vintage store. The flex is savvy, and it is still a flex.
• A Giffen good is a poverty trap about survival, as with potatoes during the Irish famine. A Veblen good is a wealth trap about status.