Readers Question: What is the name of a type of good that only has value to someone if no one else possesses it?
There are a group of goods where the main attraction of the good is related to its image as being expensive, exclusive and a symbol of social status.
A Veblen Good is a good where demand is often greater when the price of it is higher. A veblen good is often termed as an ostentatious good. It is a good people consume because it is seen as exclusive and therefore a symbol of social status / wealth. A reduction in the price of the good may make it less attractive because it would no longer be seen as socially exclusive and indicative of social standing.
Veblen goods are often used as a sign of social and personal status. They may include famous brand named handbags, watches, expensive art work.
Another term is conspicuous consumption or status seeking. These are goods we buy in order to ‘keep up with the Jones’. The good may give little actual utility apart from the pride of owning something very few other people own.
How Veblen Goods Can Make Society Worse off
Prof Eaton, of the University of Calgary, and Prof Eswaran, of the University of British Columbia recently found that rising wealth in an economy increases demand for Veblen Goods. In periods of rising prosperity, such ostentatious goods become more important There is an element of a ‘bandwagon effect’. If we see other people having a certain good there is a desire to also own such a good.
However, because these Veblen goods are very expensive, only a small % can afford them. This make the majority of the population feel worse off. Although real living standards have increased, they can’t afford many of these exclusively / desirable goods.
The other issue of Veblen goods is that they rarely have any intrinsic value, other than to show off to other people. Diamonds, luxury cars and luxury handbags give little economic utlity other than the social prestige of owning them.
The nature of Veblen goods means that only a small % of the population can afford them. Therefore, rising wealth tends to increase the price of these ostentatious goods disproportionately to make sure only a small % can still afford them. Therefore economic growth cannot solve the problem of Veblen goods. Their price will always rise to make sure a small % of the population can afford them.
This might explain at least part of the rapid rise in price of ‘exclusive modern art works’
Of course, the alternative is to take a different viewpoint and desire goods for the intrinsic value they give rather than seeking to impress the Jones’.