The Veblen Effect

The Veblen Effect occurs when people buy more of a luxury item because its high price makes it a status symbol rather than due to its practical value. Essentially, the higher the price, the more desirable the item appears, signaling wealth and social standing. This effect defies the usual rule that demand drops as prices rise, and instead, high prices increase demand because consumers associate affordability with prestige. It highlights how social perceptions and status can influence purchasing decisions, especially for luxury goods like designer handbags, jewelry, or expensive cars.