140 Veblen Effect

A tendency to find a product more desirable because it has a high price.

• Proposed by the economist Thorstein Veblen.

• In certain cases, higher prices increase demand, and lower prices decrease demand.

• For example, the effect is most pronounced for items and services that signal status, such as art, jewelry, clothes, cars, fine wines, hotels, and luxury cruises.

• High prices increase perceived quality, and low prices decrease perceived quality.

• Consider the Veblen effect in marketing and pricing. Promote associations with high status people (e.g., celebrities). Employ strategies to discourage knockoffs, including legal protection, watermarking, and aggressive counter-advertising. Set prices high based on the intangible aspects of the offering.

See Also Classical Conditioning • Cognitive Dissonance IKEA Effect • Left-Digit Effect • Scarcity

Electric cars are historically slow, ugly, and uncool. How to change this perception? Introduce a sexy electric car in limited numbers, associate it with people of status, and charge a premium. Once product perception makes the transformation from white elephant to white tiger, introduce lower-priced models. The Tesla Roadster: Veblen good.