Why Veblen goods attract buyers as prices rise: the role of status signaling in consumer behavior

Veblen goods: why price and prestige can push demand higher

Let’s start with a question you’ve probably seen in economics class and maybe even in real life: why would someone buy an item that’s more expensive than a very similar alternative? The answer isn’t just “because it’s nicer.” It’s because some goods turn up in the market as symbols of status. They’re called Veblen goods, named after Thorstein Veblen, who put conspicuous consumption on the map. In short, the higher the price, the more people want them. It sounds counterintuitive, but it’s a real and influential quirk of consumer behavior.

What are Veblen goods, exactly?

Think of products that are prized not only for their function but for what they signal about the owner. Designer handbags, luxury cars, high-end watches, and other prestige items fit this bill. The key feature is not convenience or price-perfomance, but perception. Owning one says something about wealth, taste, and social standing. For Veblen goods, demand can rise when prices rise. That’s the opposite of the familiar downward-sloping demand curve we learn in basic microeconomics, where higher prices deter buyers.

To picture it in plain terms: if a Ferrari costs more, some buyers may want it even more, not less, because the car becomes a louder badge of privilege. The same goes for limited-edition sneakers, a couture bag, or a limited-run watch. The value isn’t just the product; it’s the statement that other people read when they see it.

The Veblen effect in action

So why does price-drive-demand in this scenario? It’s about social signaling. People derive utility not only from owning goods but also from how others perceive them. When a price goes up, the product’s exclusivity often increases in the eyes of potential buyers. The high price itself becomes a signal: “I can afford this; I must be successful.” That signaling amplifies the perceived prestige, which in turn nudges more buyers toward the same item.

Let me illustrate with a few everyday examples, but keep in mind the broader lesson applies across markets. A designer handbag carries not just materials and craftsmanship; it broadcasts status. A luxury car carries brand heritage, performance, and an aura of success. A Rolex or similar luxury timepiece speaks to a lifetime of achievement and access to the finer things. Even limited-edition fashion drops or rare sneakers can act as social proof: those who own them are part of an exclusive club.

This isn’t a simple “money buys happiness” situation. It’s about social context, identity, and the human tendency to compare ourselves with others. In some circles, owning a high-priced item reduces the perceived difference between you and the next person who’s got one. In others, it expands that gap, making the status signal even stronger. The point is, price and prestige can reinforce each other in a loop that keeps demand elastic in the wrong direction for ordinary goods.

Why consumer motivations matter for behavior

People aren’t always making purely rational choices based on utility or cost. They’re influenced by a social script. If a friend or colleague shows up with a gleaming luxury bag, it can alter your own evaluation of what’s “normal.” Social proof kicks in; comparisons become cues. This is where marketing teams lean into the psychology of status: limited availability, aspirational branding, and carefully staged displays all chase that same itch.

Even shopping environments play a role. Flagship stores, premium locations, and exclusive after-sales service can amplify the prestige effect. When the product feels scarce or tied to a lifestyle, the desire to own it grows—especially among aspirants who want to signal a certain identity to themselves and others.

A practical takeaway for markets and brands

If you’re studying how markets work in the HL curriculum, here’s the practical angle: Veblen goods show that the law of demand isn’t a one-size-fits-all rule. It’s a special case. For some goods, the price elasticity of demand can be positive—the kind of reaction you wouldn’t expect if you were thinking only about cheap versus expensive, or about marginal utility alone.

That has real implications for pricing and strategy. A few patterns often show up:

• Prestige pricing: A higher price can be part of the product’s appeal. It’s not just about covering costs; it’s about maintaining an aura of exclusivity.

• Limited supply and scarcity: When availability feels restricted, the price can act as a badge of belonging. People want what others can’t easily have.

• Controlled distribution: Fewer outlets and a curated shopping experience can heighten the sense of privilege.

• Marketing that foregrounds status: Ads that emphasize lifestyle, success, and elite circles align with consumer motives.

Keep in mind, though, that not every high-priced item behaves like a classic Veblen good. Some luxury products also provide genuine functional superiority or lasting durability. The distinction lies in how much of the purchase is driven by social signaling versus utilitarian value.

A quick guide for IB HL thinking

If you’re tackling HL questions, you’ll want to frame Veblen goods with a few crisp ideas in mind:

• Identify the upward-sloping segment of the demand curve: “What would make quantity demanded rise as price falls?” In Veblen goods, the opposite can happen.

• Mention signaling and social status: “Consumers derive utility from how others perceive them.”

• Distinguish from the snob effect: With Veblen goods, demand can rise as price rises; the snob effect usually describes a fall in demand as more people own the item (because it loses exclusivity to the in-crowd).

• Use concrete examples: designer bags, luxury cars, couture items, limited-edition sneakers.

• Note policy or market implications where relevant: producers may gain from higher prices if they maintain exclusivity; consumers may experience misallocation if funds go toward status items at the expense of essential needs.

A sample exam-style thought: how would you answer a question about Veblen goods?

Here’s a concise way to phrase it: “Veblen goods exhibit an upward-sloping demand curve within certain price ranges because higher prices enhance the product’s perceived status, which adds to its utility via social signaling. This contrasts with the standard law of demand for most goods, where higher price dampens quantity demanded. Consumers buy these goods not mainly for their functional attributes but to convey wealth and status. Marketers exploit this through prestige pricing, scarcity, and exclusive distribution. However, the niche nature of Veblen goods means the effect has limits; if the price is perceived as absurd, demand can evaporate.”

If you want to sprinkle a bit of nuance, you can add: “In some markets, different consumer segments react differently to price. What signals status to one group may be seen as frivolous or wasteful to another. So, the demand for Veblen goods is not monolithic; it’s a tapestry of identities, cultures, and peer groups.”

A human moment: everyday life and the echo of status

You don’t need to live in a luxury bubble to see these dynamics. Even everyday items can borrow a bit of Veblen appeal in the right setting. Think about a premium coffee machine that doubles as a status symbol in a well-trafficked kitchen showroom or a sought-after coffee bean brand that signals connoisseurship. The ritual of owning and displaying something pricey can become a social ritual, a way to participate in a shared story about success and taste.

But there’s a caveat worth acknowledging. The prestige game is fragile. If many people climb into the club, the signal weakens, and the price might lose its magic. That’s why many luxury brands keep a tight leash on distribution and keep revising their offerings to retain that elusive aura. It’s a high-wire act: balancing price, scarcity, and perception to preserve the Veblen effect without tipping into parody.

Digressions that still connect

While we’re on the vibe of status signaling, a quick thought about social media. Platforms like Instagram and TikTok have amplified status signals in real time. A post showing a rare bag or a gleaming car can push the desire radar in a way that’s faster and broader than ever before. The visibility fabric—friends, followers, and strangers—acts as a feedback loop. It can intensify the appeal of owning something expensive, reinforcing the price-to-status link. Of course, that same digital world can also expose the fragility of the signal if overused. The consumer who buys for display alone may find the next trend makes their item feel dated, which reduces its prestige value over time.

A final thought, with a practical edge

If you’re navigating a real market with Veblen goods in your mind, remember this: the value of the product is partly about what it costs and partly about who can afford it. The consumer’s choice isn’t just about “getting the best gadget for the money.” It’s about who they want to be seen as and how they want others to see them. In simple terms, price and prestige form a bond in these markets that doesn’t always make sense in a purely utilitarian framework. And that’s precisely what makes Veblen goods such a lively topic for economists and students alike.

Bringing it back to the big picture

Veblen goods remind us that demand isn’t always a straightforward response to price. People are social beings who care about identity, reputation, and belonging. When a product doubles as a status symbol, the price becomes part of its appeal. That’s a powerful reminder: markets aren’t just about numbers; they’re about stories we tell ourselves and others about who we are.

If you’re brushing up on HL topics, keep this image in mind: a Veblen good sits at the intersection of economics and psychology. It’s where price, prestige, and people’s desire to belong collide in fascinating ways. The next time you see a luxury watch glinting in a window or a flash of a premium car passing by, you’ll know there’s more to that sparkle than meets the eye. It’s a small, real-world illustration of how consumer behavior can bend the rules—sometimes beautifully, sometimes a bit provocatively—and that’s what makes economic theory feel alive.

In the end, Veblen goods are less about the things themselves and more about the social fabric that wraps around them. And that fabric is woven with questions, signals, and aspirations we all recognize—whether we admit it aloud or keep it tucked away in the back of our minds.