This article defines a property of goods: a property that makes sense in the context of a good being bought and sold, and evaluated from the perspective of the buyer, seller, or others affected by it.
View other properties of goods
A Veblen good is a good satisfying the following equivalent conditions in a certain price range and for certain buyers:
- The price-elasticity of demand for the good is positive.
- An increase in price leads to an increase in the desirability of possessing the good.
The typical explanation for this is the effect of conspicuous consumption -- here, how expensive something is adds to the value of using it because it sends out a signal of wealth or status.
Alternative explanations for apparent Veblen goods
Further information: Giffen good
A Giffen good is an inferior good for which, within a certain price range, the demand for the good increases with an increase in price, but this is not because an increase in price increases the desirability of possessing the good. Rather, the increase in price causes an income effect of significantly reduced purchasing power, which leads the buyer to substitute away from more expensive but superior alternatives to the good.
Higher price as a signal of higher quality
In some cases, an increase in price may be taken by the buyer as an indicator of an improvement in quality. This is particularly the case for experience goods and credence goods, where the quality is hard to ascertain directly.
Changes in other factors
A higher price may be accompanied by higher demand without the higher price causing the higher demand. Rather, an increase in demand for reasons unrelated to price (in other words, an outward shift of the demand curve) may cause the market price to change. Alternatively, factors unrelated to either price or demand may cause both of them to change.