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What Is Conspicuous Consumption?

Conspicuous consumption is the purchase of goods or services for the
specific purpose of displaying one's wealth. Conspicuous consumption is a
means to show one's social status, especially when publicly displayed
goods and services are too expensive for other members of a person's
class. This type of consumption is typically associated with the wealthy but
can also apply to any economic class.

Understanding Conspicuous Consumption

The term was coined by American economist and sociologist Thorstein
Veblen in his 1889 book, The Theory of the Leisure Class. This type of
consumption was considered a product of the developing middle class
during the 19th and 20th centuries. This group had a more significant
percentage of disposable income to spend on goods and services that
were generally not considered to be necessary.

Veblen identified two distinct characteristics of goods as providing utility.

The first is what he called the “serviceability” of the good—in other words,
that the good gets the job done (e.g., luxury and economy cars are equally
able to get to a given destination). The other characteristic of a good is what
Veblen called its “honorific” aspect. Driving a luxury car shows that
the consumer can afford to drive an automobile that others may admire;
that admiration comes not primarily from the car’s ability to get the job
done but from the visible evidence of wealth it provides. The vehicle is thus
an outward display of one’s status in society.
Moreover, Veblen claimed the goods consumed by such individuals
were wasteful and did not hold any practical useful value to the buyer.
He termed consumption of the goods as a conspicuous waste.
An important point in Veblen’s analysis is the recognition that all goods
have elements of serviceability and waste. Examples of conspicuous
consumption are wearing fur coats and diamonds and driving expensive
cars. However, the dichotomy that Veblen draws between the honorific
aspects of such goods and those that further the “life process” implies that
all goods possess these dual characteristics; they have both serviceable and
honorific elements. For example, the fact that one drives a car implies that
one is wealthy enough not to have to take public transportation, but a
luxury automobile conveys still-higher status in society, because it shows
that one does not have to take public transportation or drive an economy
car.
In 1967, the theory was developed further by another American
economist, James Duesenberry, who first described the “bandwagon” or
“demonstration” effect. Duesenberry claimed that people purchased
goods and services to preserve their self-esteem and keep up with
societal expectations.

Reasons Behind Conspicuous Consumption

Many theories exist as to why people consume conspicuously. Some

theorists claim that it is due to the competitive nature of individuals.
The ownership of luxurious goods expresses the superiority of the
possessors over the non-possessors. Therefore, people compete with
each other for ownership of such goods, which causes conspicuous
consumption.

Another theory asserts that it is the insecurity of individuals that drives

them to consume material items. People use luxury goods to hide their
personal insecurities; they believe their material possessions define
their public image and mask their shortcomings.

In his book, Veblen claimed that advertising plays a huge role in

conspicuous consumption. When a company is advertised as a luxury
brand, many people want to associate themselves with its product. This
leads to conspicuous consumption as people believe they will achieve a
positive self-image when they purchase luxury brand products.

According to Veblen’s theory, people consume conspicuously for two

main reasons – to be recognized by their peers and to achieve a higher
social status in society. Both factors are a reflection of the culture and
social or economic class that the consumers reside in.
According to this theory, an individual will choose products that
improve their status in society rather than satisfy their personal needs.
Therefore, in a collectivist culture, the main driver of conspicuous
consumption is “recognition by others.”

Conclusion

Conspicuous consumption is a theory that is both economic and

psychological. The economic conditions that an individual resides in can
be a deciding factor as to whether a person decides to conspicuously
consume goods or not.

While many factors contribute to conspicuous consumption, the driving

force behind such activity is the desire for “recognition by others”, as
Thorstein Veblen famously stated in his book.

Law of Demand
Now the law of demand states that all conditions being equal, as the
price of a product increases, the demand for that product will
decrease. Consequently, as the price of a product decreases, the
demand for that product will increase. For instance, a consumer may
buy two dozens of bananas if the price is Rs.50.

However, if the price increases to Rs.70, then the same consumer

may restrict the purchase to one dozen. Hence, the demand for the
bananas, in this case, was reduced by one dozen. Therefore, the law
of demand defines an inverse relationship between the price and
quantity factors of a product.

Veblen Goods

The second exception to the law of demand is the concept of Veblen

goods. Veblen Goods is a concept that is named after the economist
Thorstein Veblen, who introduced the theory of
“conspicuous consumption“. According to Veblen, there are certain
goods that become more valuable as their price increases. If a product
is expensive, then its value and utility are perceived to be more, and
hence the demand for that product increases.

And this happens mostly with precious metals and stones such as

gold and diamonds and luxury cars such as Rolls-Royce. As the price
of these goods increases, their demand also increases because these
products then become a status symbol.
 OR

The second exception to the law of demand is the concept of Veblen

goods. Veblen Goods is a concept that is named after the economist
Thorstein Veblen, who introduced the theory of
“conspicuous consumption“. According to Veblen, there are certain
goods that become more valuable as their price increases. If a product
is expensive, then its value and utility are perceived to be more, and
hence the demand for that product increases.

And this happens mostly with precious metals and stones such as

gold and diamonds and luxury cars such as Rolls-Royce. As the price
of these goods increases, their demand also increases because these
products then become a status symbol.