The concept of the "Veblen effect
" arises when consumers are willing to pay more for a product than a functionally equivalent item.
He had just invented the Veblen effect
. Although Thorstein Veblen wouldn't give it that name for another 2,000 years.
The extreme form of such behavior is known as the 'Veblen effect
', witnessed whenever individuals are willing to pay higher prices for functionally equivalent goods (for further discussion, see also Leibenstein, 1950, and Frank, (1985)).
By the Veblen effect
we refer to the phenomenon of conspicuous consumption; to the extent to which the demand for a consumer's good is increased because it bears a higher rather than a lower price.
This emphasis is also visible with an informal examination of the citations in Bagwell and Bernheim's (1996) quantitative formulation of the Veblen effect
; most citations are from the economic literature and the emphasis is purely on explaining status signaling.
From this comes the economic irrationality of the Veblen effect
, namely, that the value of a luxury object is in direct proportion to its cost.
Harvey Leibenstein in his 1948 article used the term demand curve to refer to the cases in which not only the price of a good but "bandwagon, snob or Veblen effect
" also affected the quantity demanded.
If a Veblen effect
exists, the price that others perceive a buyer to have paid for the good enhances the buyer's marginal valuation.
on [its] inherent qualities [and] on the price paid for it." (45) Leibenstein labeled this preference "Veblen effects
" as a tribute to Veblen's work.
Leibenstein (1950) further refined the analysis with his concepts of bandwagon, snob, and Veblen effects
. Hirsch (1976) and Frank (1985) formally introduced the notion of positional goods into the utility function.
(171) Finally, "Veblen effects
" provide a catchall category for generic conspicuous consumption, where demand for a product increases as its perceived status increases.