In most markets, prices and demand move in opposite directions. Raise the price of bread, and people buy less of it. That’s the law of demand. But luxury markets work differently. A handful of goods — watches, handbags, cars, even digital collectibles — show us that sometimes higher prices make people want them more. These exceptions matter because they reveal deeper truths about how economies actually function.

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Veblen Goods: When Price Creates Desire

Some goods are desirable not in spite of their high price, but because of it. These are called Veblen goods. A $100,000 Patek Philippe doesn’t just measure time; it signals wealth and belonging. In this rare category, higher prices don’t choke demand — they fuel it.

Conspicuous Consumption and the Snob Effect

Thorstein Veblen, the economist behind the idea, called this conspicuous consumption — buying to show status rather than utility. A Hermès Birkin behind a velvet rope illustrates the point: the higher the price, the louder the message. This also explains the snob effect: once mass consumers adopt a product, elites abandon it for something rarer and more expensive to maintain distance.

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The Veblen Effect on Demand Curves

This is where economics bends. For certain goods, raising the price increases demand. The demand curve, which usually slopes downward, turns upward across some price intervals. This Veblen effect doesn’t replace the law of demand, but it shows how social signaling changes the rules.

Social Signaling in Action

Luxury goods only work as status markers if others can see them. A watch is both a precision instrument and a public statement. Scarcity makes that statement stronger. Limited runs, waitlists, and velvet-rope boutiques ensure that ownership carries meaning beyond function.

Culture Shapes the Signal

The meaning of status is never fixed. In Switzerland, it might be a handmade tourbillon. In Los Angeles, a sneaker drop. In Seoul, quiet luxury brands that whisper rather than shout. Status signals depend on culture, and markets adapt to those expectations.

Why Scarcity Is a Strategy

Luxury companies understand these dynamics. That’s why they almost never discount their flagship products. Discounts weaken the signal. Instead, they keep supply tight, raise prices, and highlight exclusivity. At auctions, scarcity magnifies the effect, pushing rare items to astronomical values.

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Distinguishing Veblen from Giffen

Not every exception is the same. Giffen goods — staples like bread in times of poverty — rise in demand with price for reasons of necessity. Veblen goods rise in demand with price for reasons of prestige. One comes from constraint, the other from distinction.

The Principle to Remember

Veblen goods don’t break economics — they enrich it. They show that people buy not only for function but also for meaning and recognition. A $100,000 watch isn’t irrational; it’s part of the human game of signaling identity and belonging. If you ignore that, you misunderstand how markets really work.