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The law of supply and demand is one of the most basic principles of economics.

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If supply is high or demand is low, the price of a product usually drops.

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If demand is high or supply is low, the price usually rises.

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A second basic principle is that people are more likely to buy a product when its price is low.

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However, there are some exceptions to this rule.

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One of them is the Veblen effect.

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First noted in 1899 by the sociologist Thorstein Veblen, this theory states that under certain conditions, consumers are actually attracted to items because they are more expensive.

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Consumers who act this way, according to Veblen, are usually rich people who want to show others just how wealthy they are.

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By purchasing and displaying expensive items, they seek to either raise or confirm their social status.

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The items involved with the Veblen effect are generally luxury goods, such as designer handbags, brand‒name sports shoes and expensive cars.

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These so‒called “status goods” are generally not of higher quality than their more reasonably priced counterparts.

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What actually matters to the purchaser is the level of prestige associated with the product or its manufacturer.

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Understanding this, marketers sometimes use the Veblen effect in their ads.

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By including words like “prestigious,” “impress” and “envy,” they can attract certain consumers to their high‒priced goods and services.

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These days, there are also people who want to keep up with their wealthier neighbors.

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They may not be able to comfortably afford luxury items, but they want others to think they can.

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Some people will spend an entire month’s salary on a single high‒prestige item, such as a designer bag.

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As a result, counterfeit products, made to look like expensive brand‒name goods, have become popular.

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Ultimately, the Veblen effect is about belonging to an exclusive group.

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If the prices of these products were lowered and everyone could afford them, they would no longer hold the same appeal.