“A tendency to find a product desirable because it has a high price”
Students of economics would be familiar with the concept that the price and demand for goods are related. This is a relationship known as the Law of demand. In this concept the prediction is that if there are two products that are the same, a higher price will decrease demand and a lower price will lower demand.
The Veblen effect is an exception to this rule or law. It was first observed by the economist Thorstein Veblen who saw a tenancy in some cases that increasing price can increase demand. Also, decreasing price can decrease demand. This effect is generally associated with traditionally higher priced luxury items such as Jewelry, luxury cars, Hotels, luxury cruise ships or fine wines.
The reason for this is the human desire for status. This is the desire to be seen to belong to the higher class or the desire to be seen to not belong to the lower class.
The Veblen effect is applicable when a good or service is visible to others. In a recent boxing match between Mayweather and McGregor in Las Vegas ring side seats were sold for US$50,000 each. These seats were only affordable to the super wealthy and those that wanted to be seen as being able to afford such high priced seats.