Definition
Unlike ordinary goods, where a higher price means fewer buyers, this is an economic effect where demand actually rises as the price goes up, because people buy to show off their wealth and status. It takes its name from "conspicuous consumption," which the American economist and sociologist Thorstein Veblen analyzed in his 1899 book. The economist Leibenstein gave the effect its name in 1950.
Why Do People Line Up More When Prices Are Higher?
You've probably seen news footage of long lines forming outside a luxury store from dawn. At a regular supermarket, shoppers only crowd in when there's a sale. But luxury handbags and high-end imported cars can keep selling out even after the price tag goes up by millions of won.
When we buy something, we look at two kinds of value together. One is the item's own convenience and practical quality. The other is the visual value we can show off to others when we own it. When the price climbs far beyond what you'd imagine, the item becomes special, something ordinary people can't easily get.
In the end, buyers of costly items are paying for more than just a function. They're also buying the feeling of proving their wealth and high social standing. The price tag itself works like an ID card or a medal.
To Be a Little More Precise: The Law of Demand and Show-Off Spending
The most basic principle in economics, the "law of demand," says that when prices rise, fewer people want to buy. With everyday goods like eggs or instant noodles, a higher price feels like a burden. People buy less, or go looking for something cheaper.
To be a little more precise, the Veblen effect doesn't break that basic principle. What changes is the main source of satisfaction for the buyer. The higher the price, the bigger the "show-off value" of displaying your wealth to others. So the item's overall appeal actually goes up.
What if a luxury brand cut its price in half so that anyone could carry its bags? It would lose the special appeal of showing off, and even its existing buyers might close their wallets. The high price itself is the product's biggest selling point.
How Is It Different from the Snob Effect or the Bandwagon Effect?
There are several interesting kinds of buying behavior driven by what others think. The urge to buy because everyone else is buying, so you don't fall behind the trend, is called the "bandwagon effect." The opposite, where you stop buying because too many people own it and it feels common, is called the "snob effect."
The Veblen effect looks similar, but it focuses squarely on showing off wealth through a high price. People don't buy because the item is rare. They buy because it's so expensive that others can't easily reach for it. That's the key difference.
Today, companies use this mindset on purpose. Not only in luxury fashion but also in ultra-premium home appliances and high-end hotel stay packages, they set prices high deliberately as part of a premium strategy.
Common misconceptions
The Veblen effect is when an item sells well even at a high price because its quality is so outstanding.
It isn't about quality. The high price itself, which lets people show off to others, is what drives the purchase. Even when quality is similar, demand rises as the price goes up. That is the core of the Veblen effect.
Where you meet it
A luxury brand's handbag that people camp out overnight to buy, even though the price goes up by a large amount every year
A limited-edition diamond watch that tells time just like an ordinary watch, but costs hundreds of millions of won and shows off the owner's wealth
In one sentence
Because people want to show off their wealth and status, demand can actually rise as the price goes up.