The Veblen Effect refers to when consumers’ demand for a commodity increases because its price is high, not low. It reflects people's psychological desire to engage in profligate consumption.
Let me give you an example:
One day, in order to inspire his little apprentice, Max took a stone from the backyard and told the apprentice to go to the vegetable market to sell, but not really sell it. Max said, “Observe and ask people for how much they would want to buy this stone, and come back just to tell me how much it can sell in the market.”
Early the next morning, the little boy took a large stone and went to the vegetable market to sell it. The market is full of people, and people are curious and thinking: a broken stone can be used to press sauerkraut or make a scale. So they offered only a few copper coins. The little boy returned to Max and told him that the stone was only worth a few copper coins, and that no one had bought it. Max told him to take it to the gold market and try to sell it again.
When the apprentice arrived at the gold market, many people looked at him who held the stone without saying a word, and people became more and more curious, and thought: the boy who can hold something like this to the gold market is certainly not simple, and there must be something different about this stone. Suddenly a man in the crowd came out and said to him that he was willing to pay ten silver coins to buy the stone. The little apprentice still did not say a word and walked away with the stone. Back to Max, the apprentice told him about the situation in the gold market. Again, Max told him to try to sell it at the jewellery market tomorrow.
On the third day, the little boy carried the stone to the jewellery market, but just after stepping into the market, he saw a large group of people rushing towards him, and in the noise, the boy heard people yelling to bid one after another. A man even would want to change his jade for the stone: it turned out that after what happened in the vegetable market and in the gold market a few days ago, everyone knew that this little boy holding a mysterious stone, so they all wanted to find it out, and at the same time they all wanted to buy this stone in order to show their financial resources.
This is a typical Veblen Effect phenomenon. You can understand it from this perspective: the purpose of consumers who spend a lot of people to buy something that is not actually worth the price is, in fact, not simply to obtain the goods, but to obtain a sense of satisfaction. Now, can you understand what Veblen Effect is?
