Laurie Simon Bagwell

American Economic Review, 86(3), 1996, 349-373

We examine conditions under which "Veblen effects" arise from the desire to achieve social status by signaling wealth through conspicuous consumption. While Veblen effects cannot ordinarily arise when preferences satisfy a "single-crossing property," they may emerge when this property fails. In that case, "budget" brands are priced at marginal cost, while "luxury" brands, though not intrinsically superior, are sold at higher prices to consumers seeking to advertise wealth. Luxury brands earn strictly positive profits under conditions that would, with standard formulations of preferences, yield marginal-cost pricing. We explore factors that induce Veblen effects, and we investigate policy implications.

Research Fields : 
Behavioral Economics
Behavioral Public Economics
Game Theory (Applied)
Industrial Organization & Antitrust
Microeconomic Theory
Psychology of Choice
Public Economics
Social Norms
Social Preferences
Taxation, Budgets & Deficits