Veblen goods
Veblen effect · positional good · conspicuous consumption
A good whose demand rises as its price rises, because the price is the point. Thorstein Veblen described the pattern in 1899: some purchases signal standing, and a cheap version signals nothing.
In practice
Raising a rate sometimes increases enquiries, because the price was reading as a statement about the quality of the work.
The common mistake
Concluding that raising price always raises demand. The effect requires the price to be visible to an audience whose opinion the buyer cares about, and most purchases are not like that.
Ordinary goods obey the law of demand: raise the price and fewer are bought. Thorstein Veblen, in The Theory of the Leisure Class in 1899, described a category that does the opposite.
For some goods the expense is the product. A watch that costs as much as a car does not tell better time. What it does is demonstrate that the owner could spend that, and a cheaper version cannot perform that function however well it works.
The condition
Two things have to be true, and both are commonly missed.
The price has to be visible. A private purchase cannot signal anything. The good has to be seen, or known about, by the audience the buyer cares about.
The audience has to matter to the buyer. Which makes this a positional good — the value is in the relative standing it confers, which is why these are inherently status games and why they cannot be won by everybody.
Remove either condition and the effect disappears, which is why most attempts to price something as a Veblen good simply lose sales.
The version that applies to services
The pure form is rare in professional services, and something adjacent is common and is worth separating from it.
Price as a quality signal. Where quality cannot be assessed in advance, buyers use price as evidence, because a supplier charging far below the market either does not know their worth or is not good. Raising a rate can increase demand for this reason, and it is signaling rather than a Veblen effect — the buyer wants good work, not the ability to mention what they paid.
Price as access. A high price restricts the client pool, which some buyers want, because it means the supplier is not overcommitted.
Actual Veblen dynamics. Real in a few places — the consultancy hired partly so the board can be told which consultancy was hired. The purchase is visible and the visibility is part of what was bought.
The practical distinction matters because the tactics differ. Signaling quality means raising price and making the reasons legible. A Veblen good means making the price itself visible, which for most service businesses is not available and not desirable.
The thing to take from it
Demand is not always a decreasing function of price, and the exceptions cluster where the buyer cannot judge quality directly or cares who knows. In both cases a low price is carrying information you did not intend to send, which is the reason underpricing costs more work than it wins.
Concept web
Open the full webQuestions
What is a Veblen good?
A good whose demand rises with its price, because the expense itself is what is being bought. Thorstein Veblen described the pattern in 1899 as conspicuous consumption.
Does raising prices always increase demand?
No. The Veblen effect requires the price to be visible to an audience whose opinion the buyer cares about. Most purchases meet neither condition, and raising price simply reduces sales.
Why can raising a service rate increase enquiries?
Usually because price is being read as evidence of quality where quality cannot be assessed in advance. That is signaling rather than a Veblen effect — the buyer wants good work, not the ability to mention the price.