A very common disgruntle amongst newly informed students who get a glimpse of Economics for the first time in their life on topics like Theory of Demand, Theory of Supply, etc. is that with pondering upon various real life scenarios they tend to question the Laws and concepts; which is quite obvious for a rational being. With passage of time and supplementary increment in their understanding capacity about various aspects of Economics in general allows them to comprehend to the teachings.
A very common question in the beginning for students learning economics for the very first time is that in real world instances like Rolls Royce Cars, products of the brand ‘Supreme’ and several Swiss watch making companies to name a few don’t actually adhere to the ‘Law of Demand’ that states “other factors remaining constant, quantity demanded of a good/ service is inversely proportional to movement in its price” which could be quite frustrating. A further question raised in mind is “Isn’t a law supposed to be held good in any scenario?” which is very much reasonable.
To begin with, the topic it is predominantly crucial for the readers to have at least a basic understanding of what Veblen Effect is:
VEBLEN EFFECT:
To put forward simply in layman’s term, “when a product’s quantity demanded in market is directly affected by the price changes”. A matter of caution though for the readers is not to quote this explanation in front of a well-learned economist as this is merely for getting a layman understand this topic.
The definition of Veblen effect/ Veblen goods/ concept of conspicuous consumption by economist Thorstein Bunde Veblen (1857-1929), a well-known critic of capitalism, who actually coined the term(s) describes: “Conspicuous consumption is the spending of money on and the acquiring of luxury goods and services to publicly display economic power—of the income or of the accumulated wealth of the buyer. To the conspicuous consumer, such a public display of discretionary economic power is a means of either attaining or maintaining a given social status” (Veblen, 1899)
Also, an important matter to be noted that the concept of Conspicuous Consumption/ Veblen Effect is an Exception to the Law of Demand. (Other Exceptions have not been discussed for simplicity purpose)
Now for a few readers who might have already acquainted themselves with Exceptions to the Law of Demand might poise another question: Is Giffen Goods same as Veblen Effect?
To understand this we should understand the similarity firstly:
Both of the concepts are Exceptions to the Law of Demand i.e. the quantity demanded in both type of goods is not inversely related to the prices of the said goods (assuming all other things to be constant).
Moving on the difference part:
In case of Giffen Goods, with changes in prices the Quantity demanded is not affected at all or only at a miniscule level.
A classic example for Giffen goods is Salt, with decrease in prices the Quantity demanded for salt is not affected.
However, in case of Veblen Goods, with decrease in prices there is a potential decrease in Quantity demanded and vice versa.
The present day example of Veblen goods can be various products promoted under the brand of ‘Supreme’ which broadly produces clothes, related accessories and skateboards; wherein with increase in prices of its products have driven its quantity demanded in market.
OUTLOOK ON THE PRODUCTS BY SUPREME
To correlate with the topic of this blog, which brand of products could serve a better purpose than ‘Supreme’?
Some key information about Supreme’s popularity (JACK HOUSTON, 2019):
“Supreme was once a small skateboarding store in New York. Now, it’s a billion-dollar company well known for its presence in the fashion industry.”
“The retail value of Supreme’s clothing isn’t that outlandish- around $38 for a t-shirt – but once the items sell out, they begin to increase in value.”
“Supreme under-produces to the demand, creating a huge resale market and exclusively associated with the brand. Some sellers have flipped items for over 20 times the original price.”
In 2018, Supreme was awarded the Council of Fashion Designers of America’s Menswear Designer of the Year Award. (Smith, 2018)
The obsession with this brand can be understood from this following excerpt (Clifton, 2016):
“Before each “drop day,” SupTalk members discuss their favorite upcoming items—the Morrissey T-shirt, for example, or the snakeskin shoe from an Air Max collaboration that’s released a couple of months after I visit the store. Online, these hyped up pieces sell out in milliseconds—for $130, you can buy a “bot” that purchases your desired piece as soon as it appears in the e-store—and Supreme produces limited stock, so when it’s gone, it’s gone.
Until, that is, it appears again, on SupTalk or eBay, for considerably more than its original price. Some items go for twice what they cost on the rail, some for the sort of markups more commonly applied to movie-theater popcorn. This is especially true for the last couple of years, as interest in the brand seems to have shot up exponentially. A $210 pink-denim jacket from SS16 is flipped for nearly $3,000 to a buyer in Kyoto. On Grailed, a high-end clothing resale site, you’ll often find old Supreme for the same price as a plane ticket from London to Bangkok. Where privileged schoolboys once spent their parents’ dividends on PlayStations and plasma TVs, turning their noses up at fashion, they’re now paying “proxies” to line up on drop day and buy $170 pullovers.”
CONCLUSION
The fascination about certain brand of products has been evident throughout the modern economics era and might have its roots way prior to that too, several Behavioural Economist have conducted decades of study in this area and several are on-going. Until, then it can be concluded that there is great prominence of Veblen Effect in today’s time too!
References:
- Clifton, J. (2016, July 19). Why Are So Many People Obsessed with Supreme? Vice.
- JACK HOUSTON, N. F. (2019, May 17). How Supreme went from a small skateboarding store in New York to an $1 billion streetwear company with a cult-like following among teens. Business Insider India.
- Smith, J. (2018, November 18). “Almost 25 Years Later, Supreme Is Still a Skate Shop”. Vice.
- Veblen, T. (1899). The Theory of the Leisure Class. Project Gutenberg.
Author Details
Shahin Selkar | PGDM (IM) | 2019-21
 |
Shahin has completed M.Com (Adv. Accounting & Auditing). He is currently pursuing PGDM in Infrastructure Management (2019-21) at AIIM and he is also pursuing C.A. (Inter) and CGMA (Operational). He has worked as an Articled Assistant for 3 years at Kherada & Co. (Chartered accountants) in major functions of Financial Accounting, Auditing, Financial Analysis & Consulting by leading a team of professionals in varied projects for companies in sectors of: Oil & Gas (E&P), Electricity Generation and Goods Transport Agency's.
|
|---|
Other blogs by Shahin Selkar
No comments:
Post a Comment