When Higher Prices Raise Demand

How some luxury goods become more desirable as they get more expensive, why this breaks the usual law of demand, and how brands use it.

Normally, higher prices reduce demand. For some luxury goods, higher prices can make them more desirable.

Veblen goods

Named after economist Thorstein Veblen, these goods are valued partly because they are expensive. The high price signals wealth and status.

Why it happens

Signalling: owning an expensive item shows you can afford it.
Exclusivity: fewer people can buy it.
Perceived quality: people assume expensive means better.

How brands use it

Regular price increases: luxury brands raise prices yearly, sometimes making items more sought-after.
Never discounting: sales could damage the brand’s image. Some brands have destroyed unsold goods rather than discount them.

Limits

Veblen effects work only up to a point. If prices rise too much, even wealthy buyers may turn away.

Not only luxury

Some ordinary consumers also choose expensive options as signals, like premium phones or branded clothes.

The price hike

A luxury brand raises the price of its classic bag by 10 percent. Instead of falling, demand holds steady, and waiting lists grow, as buyers see the bag as even more exclusive.

Thinking the law of demand always holds

For Veblen goods, higher prices can raise desirability.

Key takeaways

Veblen goods are valued partly because they are expensive.
High prices signal wealth and status.
Luxury brands raise prices and avoid discounts.
Veblen effects have limits.