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The Veblen effect is a phenomenon in which demand for some goods rises as their price rises. This runs directly against the usual economic rule that the more expensive something is, the less of it sells. With so-called status goods, or Veblen goods, it is the other way round. Here a high price is not an obstacle but the main attraction. It is exactly what gives a product prestige and signals to others that its owner can afford it. So people are not just buying a thing, they are also buying what that thing says about them. And they are happy to pay extra for that message. Historically, the effect showed up, for example, in the Netherlands during the so-called tulip mania.
Cognitive bias classification
- Cause (Cognitive Bias Codex): Not enough meaning
- Mental domain: Decision-making (assessing value)
- Marketing function: Price and value
- Customer journey: Consideration
- Cialdini’s principles: not applicable
- System 1 / System 2: System 1 (fast, automatic)
In a nutshell
- What it is: with status goods, demand rises with price, not the other way round.
- Why we do it: price works as a signal of quality and, above all, of social standing.
- Where you’ll see it: luxury watches, handbags, cars, wine, but also premium versions of everyday products.
- How to use it: with a premium brand, don’t offer discounts, build scarcity and status.
A real-life story
The term comes from the American economist and sociologist Thorstein Veblen. As early as 1899, in his book The Theory of the Leisure Class, he described what he called conspicuous consumption. In his view, the wealthy do not buy expensive things because they are necessarily better, but to show off their wealth and status in public. Here the price is effectively part of the product. The higher it is, the louder it shouts to the world “I can afford this”. In 1950 the economist Harvey Leibenstein then formally described this phenomenon and distinguished it from the related snob effect.
The history of diamonds shows this beautifully. Diamonds are not nearly as rare as we think. Their high price and their status as an engagement symbol were built mainly by a brilliant 1947 marketing campaign from De Beers with the slogan “A Diamond is Forever”. A high price became proof of love. A cheap diamond would not do the job, because it would prove nothing.
Imagine Tereza choosing a handbag. Two are almost indistinguishable, except that the more expensive one carries a well-known logo and costs ten times as much. Tereza picks the expensive one. She is not paying for the leather or the stitching, she is paying for what the logo tells other people. And if the brand suddenly launched a big sale, the magic would vanish. The handbag would instantly stop being a symbol of exclusivity.
Fun fact: this is why luxury brands would rather destroy unsold goods than discount them. A discount would undermine the perception of scarcity and exclusivity on which their entire business rests. With Veblen goods, a low price is the enemy.
How the Veblen effect works
When we cannot easily judge quality, we use price as a shortcut. We automatically associate more expensive with better. With status goods, a social dimension is added. A thing is valuable precisely because not everyone can afford it. If everyone had it, it would stop making sense. The effect is close to the halo effect, where a single signal such as price colours the whole judgement, and to anchoring, because a high price sets a reference point. How we present the offer also plays a role, which is what the framing effect covers.
Use in marketing
- Price as part of the value. For a premium brand, a high price is a message, not an obstacle. A price that is too low can paradoxically reduce perceived value and put people off.
- Build scarcity. Limited editions, waiting lists and restricted availability strengthen status. What is for everyone stops being prestigious.
- Be careful with discounts. With status goods, discounts destroy the magic. Add value or a gift rather than cutting the price.
- Visible signs. A logo, design and an unmistakable look let the owner display status to others. Without visibility, the Veblen effect weakens.
- Brand story and heritage. History, craftsmanship and exclusivity justify the price and set the brand apart from cheaper substitutes. This is where strong brand positioning helps.
- A premium version of an everyday product. Even with ordinary goods, you can create a more expensive version that attracts people who want the very best. It also works alongside fear of missing out.
How to resist the Veblen effect
- Separate price from quality. Ask yourself whether you are paying for a better product, or just for a logo and a feeling of prestige.
- Who are you showing it to? Consider whether the purchase serves you, or mainly the impression it makes on others.
- Compare without the brand. If it didn’t have the logo on it, would you pay that much for it?
The Veblen effect shows that a price is not just a number but also a message. For luxury brands, a high price is the best advertising there is. For us as buyers, it is worth knowing when we are paying for quality and when we are just paying for a message to others.
Frequently asked questions
What is the Veblen effect?
A phenomenon in which demand for status goods rises with their price, because a high price signals the owner’s prestige and social standing.
Who described the Veblen effect?
It is based on the 1899 work of the American economist Thorstein Veblen and his concept of conspicuous consumption. Harvey Leibenstein formally described the phenomenon in 1950.
What is the difference between the Veblen effect and the snob effect?
The Veblen effect is driven mainly by price and status, while the snob effect is driven by a desire for exclusivity, where we stop wanting something as soon as too many people have it.
