The Veblen effect describes a situation in economics where the demand for a good actually increases as the price goes up.
This seems to defy the normal laws of supply and demand, where typically, higher prices lead to lower demand.
Reasons why the Veblen effect might happen:
Conspicuous consumption
People buy these goods to show off their wealth and status. A higher price tag can make the good seem more exclusive and desirable, which increases its appeal to some consumers.
Belief in higher quality
Some consumers associate a higher price with better quality. They might reason that a more expensive product must be better made or perform better than a cheaper alternative.
These goods are called Veblen goods, and some common examples include luxury handbags, designer clothing, and high-end cars.
The Veblen effect is named after Thorstein Veblen, a sociologist who studied the relationship between consumption and social status.