What role do Veblen goods play in consumer behavior?

Veblen goods play a significant role in consumer behavior as they are associated with higher social status and are perceived as luxury items. The demand for these goods actually increases as their prices rise, contrary to the typical law of demand where higher prices usually lead to lower quantities demanded. This counterintuitive behavior occurs because consumers derive utility not just from the good itself, but also from the prestige and status it conveys to others.

When individuals buy Veblen goods, they often do so to signal wealth and success, thus reinforcing their social standing. For example, designer handbags or luxury cars serve not only as products but also as symbols of affluence, attracting more consumers even at higher prices. This unique characteristic of Veblen goods illustrates how consumer motivations can extend beyond mere functionality and cost considerations to encompass social and psychological facets of consumption.