Veblen Effects in a Theory of Conspicuous Consumption
Bagwell and Bernheim examine when Veblen effects arise from the desire to gain status by signalling wealth through conspicuous consumption. Such effects cannot ordinarily arise when preferences satisfy a single-crossing property, but they can emerge when it fails. Budget brands are then priced at marginal cost, while luxury brands that are not intrinsically better sell at higher prices to consumers who want to advertise wealth. Luxury brands earn positive profits under conditions that would normally yield marginal cost pricing. The authors also explore what induces Veblen effects and the policy implications.
Bagwell and Bernheim examine when Veblen effects arise from the desire to gain status by signalling wealth through conspicuous consumption. Such effects cannot ordinarily arise when preferences satisfy a single-crossing property, but they can emerge when it fails. Budget brands are then priced at marginal cost, while luxury brands that are not intrinsically better sell at higher prices to consumers who want to advertise wealth. Luxury brands earn positive profits under conditions that would normally yield marginal cost pricing. The authors also explore what induces Veblen effects and the policy implications.
Written from the abstract as shown on the OpenAlex record, read 2026-11-04.
What our sources record
Recorded when this source was checked, figures included, with page references and quotation marks removed.
Bagwell, L. S., & Bernheim, B. D. (1996). Veblen Effects in a Theory of Conspicuous Consumption. American Economic Review, 86(3), 349-373.