Veblen Effect
The Veblen Effect is an interesting inversion of supply and demand, where instead of demand driving the price, the price drives the demand. Intentionally making something more expensive and therefore more exclusive drives the demand of the product. There is even an entire category to these products, called “Veblen Goods”
Example #1: Tesla Roadster
The Tesla Roadster was the first highway legal all electric car to use lithium-ion battery cells, and its high price and limited availability drove its demand. Once the concept of the Tesla all electric vehicle took off, they expanded their product line to include lower priced models.
Example #2: Johnnie Walker Blue Label
Johnnie Walker Blue Label. At over $150 a bottle, this whisky is supposed to be “an unrivaled masterpiece – an exquisite combination of Scotland’s rarest and most exceptional whiskies. Only one in every ten thousand casks has the elusive quality, character and flavor to deliver the remarkable signature taste.” Honestly to me, it tastes the same as the Black Label for 10 times the price.
Example #3: Oakley Sunglasses
Compare the two sunglasses here, one is clearly superior, no? Oakley has built a brand as a luxury sunglasses and other sporting goods brand, and is generally associated with a certain status.
Sources:
Veblen Goods:
https://www.economicshelp.org/blog/1164/economics/veblen-goods/
Tesla Roadster Example:
Lidwell, William, et al. Universal Principles of Design. Rockport, 2010.
Facts about the roadster:
Shahan, Zachary (2015-04-26). “Electric Car Evolution”. Clean Technica. Retrieved 2016-09-08. 2008
Johnny Walker Blue Label (image and quote):
https://www.johnniewalker.com/en-us/our-whisky/johnnie-walker-labels/blue-label/
Great job in giving examples that highlight the Veblen Effect. Another example that comes to mind is Gucci’s yoga mat. It is currently being resold for $706.83 by a seller from Italy. While one can purchase a used yoga mat for probably $5 unbranded, the fact that the Gucci logo is embedded on this yoga mat somehow increases this yoga mat’s value exponentially. On top of that, it seems that people are interested in this mat not for its purpose but rather for its exclusivity as a collector’s item. The price of this mat further drives up its demand because it makes consumers perceive it to be even more of a premium designer product. Ironically, the practice of yoga itself preaches mindfulness and in a way, being humble. It makes me think that a true practitioner of yoga would not even be interested in buying a designer mat. Therefore, the demand for this mat likely comes from those who simply want to add to their Gucci collection and show off that they are wealthy enough to afford a Gucci yoga mat.
Gucci yoga mat for sale: https://us.vestiairecollective.com/lifestyle/sport/fitness/gucci/cotton-yoga-mat-gucci-3742102.shtml
Apple’s iPhone make a great example for the Veblen effect, where despite how the retail price per device is increasing every year, the amount of units sold are not affected. Apple users/fans are willing to buy Apple products even if prices are increasing per year. With every new release, the latest iPhone becomes a symbol of wealth and trendiness for people.
Here is statista’s overview of how many units of devices were sold per quarter for Apple since 2006: https://www.statista.com/statistics/253725/iphone-ipad-and-ipod-sales-comparison/