Veblen goods. Defying rational economic theory since 1899.
Price elasticity is a funny thing.
Rationally, the more expensive something becomes the less likely it is to be bought.
For a certain set of goods, however, quite the opposite occurs. The desire for them increases the more expensive they become.
It is one of a family of apparent contradictions of the ‘Law of Demand’ in microeconomics where greater demand should result in lower prices.
These ‘Veblen’ goods include fine wines, designer handbags, luxury cars and watches.
The term is named after the American economist Thorstein Veblen who famously introduced the term “conspicuous consumption.”
What makes ‘Veblen’ goods so desirable is that they are the ultimate status symbols for those living this type of lifestyle.
For maximum impact, the ‘scarcity effect’ is employed to make them appear even more desirable.
A recent example was the Range Rover SV coupe launched at the 2018 Geneva Motor Show.
The regular model starts at £79,995. This model which is essentially the same product (minus two doors) is priced at £240,000 and limited to only 999 examples.
In summary, there are two key methods you can employ to help what you sell become a Veblen good. Firstly, limit its supply (even doing this artificially works — the Diamond industry has been doing so for years). Secondly, show that the product is popular (find a metric that works in your favour and then flaunt it).
If you’re interested in finding out more about the ways in which our psychology impacts our decision making then check out our popular course on Behavioural Economics.