Veblen Goods: Where Higher Prices Create More Demand
A luxury handbag's price tag is part of the product. Cut it in half and you might sell fewer bags.
Most goods follow a predictable rule: charge more, sell less. Veblen goods break it. Named for Thorstein Veblen, who described conspicuous consumption in his 1899 book The Theory of the Leisure Class, these are products where part of what buyers pay for is the price itself.
The mechanism is signaling. A Hermès Birkin bag priced at $10,000 communicates something about its owner that a $500 bag cannot, regardless of the leather quality. The high price is not incidental to the purchase — it is the purchase. Lower the price, and you change what the object means. Demand may actually fall.
Luxury brand managers understand this acutely. In 2023, Hermès raised prices across its product line for the fifth consecutive year. Louis Vuitton, Chanel, and Gucci have all used price increases as demand management tools during inflationary periods, recognizing that the alternative — appearing accessible — damages the brand's exclusivity more than any supply constraint. Chanel raised some handbag prices by 70% between 2020 and 2022.
Veblen goods are distinct from Giffen goods, a related economic anomaly where staple food prices rise and poor consumers buy more of them because they can no longer afford the alternatives. Robert Giffen observed this in Victorian England with bread and potatoes. Both produce upward-sloping demand curves, but Veblen goods work through status and Giffen goods through poverty.
The market for resale sneakers is a modern Veblen case study. Nike deliberately limits supply of certain Jordan models. Scarcity plus resale prices in the thousands signal authenticity — and amplify demand for the very shoes you cannot easily buy.
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