The Economic Theory of Conspicuous Consumption
by U.S. Mason*
Introduction General economic theories of consumer demand work well in describing market behaviour with respect to most purchases and the explanation of consumer choice between competing commodities is clearly acceptable for the great majority of scarce goods. However, these theories do not easily accommodate the many non-economic factors associated with preference formation and with the shaping of con-sumer attitudes and values. They also pay little or no attention to the dynamic pro-cess of choice, purchasing and consumption; in effect, they treat purchasing, con-sumption and satisfaction as synonyms.
Economists have argued that they cannot and should not be concerned with the intricacies of individual preference formation and that no useful purpose is served by studying differentiated behaviour originating from the preference field. This view is often reinforced by a commitment to market rather than to individual demand preferences and by a concentration on aggregate data rather than on studies of the heterogeneity of mass markets.
With this predominant interest in aggregate as opposed to individual demand for-mation, attention has understandably focused on those forms of consumption which fall within and can be explained by the general laws of demand. Products are seen to be consumed in inverse proportion to their prices and in direct proportion to the size of consumer incomes for so long as the relative marginal utility of consumption re-mains positive. It therefore becomes difficult to accommodate any consumer behaviour which runs counter to these assumptions and which may be seen to challenge the general theory of demand formation.
One form of exceptional consumer behaviour which has received little attention over the past fifty years is that of conspicuous consumption. Motivated by a desire to impress others with the ability to pay particularly high prices for prestige products, it is a form of consumption which is inspired by the social rather than by the economic or physiological utility of products. In its pure form, when the con-sumer is influenced in his decision to buy only by a wish or need to display purchas-ing power, the direct utility of the commodity he purchasesi.e., its utility in use is of no interest. Satisfaction is derived from audience reaction not to the positive at-tributes of the good or service in question but to the wealth displayed by the pur-chaser in securing the product for consumption. Consequently, the cost of purchase or product pricebecomes the only factor of any significance to the buyer.
*Department of Business and Administration, University of Salford.
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Conspicuous consumption is no recent phenomenon. Evidence of such behaviour can be found in the earliest societies and the economic extravagances and excesses of many individuals and social groups have been well documented. In more recent years, a combination of factors has made pure conspicuous consumption increasing-ly rare, but it undoubtedly survivesoften in modified formas an economic and social reality. Present-day snob and bandwagon effects are themselves, for instance, derivatives of conspicuous consumption and can have a considerable influence on consumer choice and demand.
Lack of interest in conspicuous consumption is due in part to the belief of many economists that ostentatious economic display, with its cultural, sociological and psychological overtones, is better suited to research by behavioural scientists rather than by demand economists. Furthermore such behaviour, whatever its motivation, is seen very much as an individual preferenceusually associated only with the very richwhich is notable only in so far as it is a relatively insignificant exception to the aggregate marginal utility theory of demand. Finally, and more fundamentally, these negative views are reinforced because conspicuous consumption is seen to call into question a central principle of conventional demand theorythat an increase in the price of a commodity, other things being equal, makes it a relatively less attrac-tive purchase.
All general theories of consumer demand argue that as the price of a product in-creases then demand for that product can be expected to fall. For the great majority of goods and services that is demonstrably true. However, when buyers wish to con-sume conspicuously to achieve status gains, an alternative hypothesis often seems more appropriatei.e., that the higher the price of the product in question then the greater the demand of conspicuous consumers will be, for the higher the price level then the more will the potential buyer come to recognise that purchase and con-sumption of the product will be taken by others as a sign of the buyer's significant financial status. Hence demand will rise for as long as income or wealth constraints are not significant.
If this "special case" hypothesis is accepted it then becomes possible to argue firstly that for certain conspicuous products positive price/demand relationships may exist and secondly that as a direct consequence of these "perverse" price/ demand relationships the concept of upward-sloping demand schedules cannot be discounted and may well exist for a range of goods which cater primarily to the con-spicuous consumer.
Acceptance of the concept of positively correlated price/demand relationships poses no great problem for economists for there is already sufficient evidence to sug-gest that such relationships do exist. Demand for Giffen goods, the "price expecta-tions effect" and the strong association between price and perceived product quality which exists for many product groups can all produce conditions in which price and demand move together and in the same direction. There is, therefore, no reason to suppose that similar demand patterns could not as easily be observed in so far as conspicuous consumption is concerned. However, it is possible that the conspicuous consumption "special case" has received less attention and recognition because it is in one important respect different from these other exceptions to the law of demand in that the decision to purchase for prestige and status gains alone must be considered
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"irrational" in purely economic terms and only becomes rational on cultural, social or psychological grounds. In this respect, conspicuous consumption becomes a special case among special cases.
In acknowledging positive price/demand relationships, it then becomes possible to argue that upward-sloping demand schedules can and do exist for conspicuous goods. Socially visible products which are conspicuously consumed should theoretically produce demand curves which contrast strongly, in their nature and direction, with those assumed under the general laws of demand. Whilst recognising the existence of "perverse" demand, however, there has been a far greater reluc-tance on the part of economists to break with classical demand theory by conceding the possibility of positively-sloped demand schedules.
Some few economists have accepted the theoretical and practical consequences of conspicuous consumption which run counter to the accepted laws of demand and have been prepared to explain such behaviour as something lying outside conven-tional marginal utility theory which does, in fact, produce upward-sloping schedules. A more popular approach, however, has been to argue that conspicuous consumption motives can and do generate certain exceptional demand behaviour but that this nevertheless can be accommodated within marginal utility theoryi.e., it is suggested that, for conspicuous consumers, changes in price effectively change the nature of the product itself (not in a physical but in a perceptual sense) and therefore do not give rise to single-product upward-sloping demand curves but cause "new" products to be created and produce shifts to newly-created (and downward-sloping) demand schedules.
Finally, more negative views of conspicuous consumption have been taken by a significant minority. There are those who have argued that, whilst isolated examples of conspicuous economic display may have occurred in the past and indeed may still be observed today, such behaviour is in fact so exceptional as to be unimportant in practice and undeserving of any detailed study. At the very extreme, conspicuous economic behaviour has been considered not only unimportant in terms of its overall incidence but has been rejected as an act so irrational as to justify calling into question the sanity of the consumer.
A Literature Review Seen in overall terms, serious consideration of the existence, nature and conse-quences of conspicuous consumption has been minimal to date, primarily because such behaviour has been treated as relatively trivial and in any case as a phenomenon owing more to the social psychology rather than to the economics of consumption and of consumer preference formation. The subject has in fact received specific attention only from a very small number of economists who have been either con-cerned or intrigued by such exceptional forms of economic behaviour and who have attempted to explore the demand implications of such phenomena. Although the theoretical literature on conspicuous economic behaviour and on price-dependent preferences is sparse and offers little in the way of detailed explanation, the more significant contributions merit further examination.
Following the work of Veblen, little if any interest was shown in conspicuous con-sumption for many years. A search of the literature between 1915 and 1945 reveals
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no work in this area (i.e., no work in the field of economic theory) either in Europe or the United States. The first paper of any significance which addressed itself somewhat indirectlyto conspicuous economic behaviour appeared in the 1945 Review of Economic Studies. Tibor Scitovsky then advanced the hypothesis that the price of certain "snob" products was often taken, by status-conscious consumers, to be a part of the overall quality of the commodity and that in such circumstances a high price could be seen by these consumers as a product attribute rather than as a purely negative "cost". However, he did not develop the implications of this hypothesis for demand behaviour.
The Scitovsky paper failed to stimulate any immediate response. In the next few years, however, whilst no reference was made explicitly to conspicuous consumption and to its particular price/quality implications, greater recognition was given to the role of interpersonal utility functions in determining demand for certain goods. Duesenberry developed his theory of the "demonstration effect" and economists working in other areas came to acknowledge the significance of socially-inspired economic behaviour to a far greater extent.
Conspicuous consumption was next examined in any detail by Liebenstein who, without reference to Scitovsky's earlier paper, again opened the issue of the many forms of price-dependent preferences which could be observed in the marketplace. His analysis remains one of the more comprehensive treatments of the subject.
Liebenstein and the Theory of Veblen Effects In attempting to explain the nature of price-dependent preferences, Liebenstein argued that it is first of all necessary to relax one of the fundamental implicit assumptions of classical demand theorynamely, that the consumption behaviour of any one person is independent of the consumption patterns of others. Having removed this constraint, greater account can then be taken of the importance of in-dividual and group motivations and of social psychology in shaping demand for cer-tain goods and services.
Liebenstein classified demand into two major groups: firstly, "functional de-mand" motivated by the tangible qualities inherent in products and secondly "non-functional demand" which describes that portion of demand for consumer goods which is generated by factors other than product utility and value in use.
Non-functional demand is then seen as having three principal elements speculative demand, prompted by the price expectations effect and observed when individuals buy either more or less of a product in anticipation of price rises or price falls; irrational demand, covering purchases which are unplanned and which owe more to sudden whims and desires than to rational purpose; and finally demand for products whose utility derives not from personal consumption but from "external effects".
These external effects on utility are further differentiated into three component partsnamely, bandwagon, snob and Veblen effects. The bandwagon effect refers to the extent to which the demand for a commodity is increased primarily because many others are already consumingor intend to consumethe product in ques-tion. The snob effect reflects the extent to which demand for a commodity may, in
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fact, decrease due to the fact that it is already being consumed by too many people in the eyes of the potential buyer and has consequently had its status value reduced. And the Veblen effect is taken to refer to "the phenomenon of conspicuous con-sumption...to the extent to which the demand for a consumer's good is increased because it bears a higher rather than a lower price". In particular, the distinction is drawn between snob and Veblen effects in that the former is, like the bandwagon ef-fect, a function of consumption whilst the latter, in its pure form, is a function only of price.
In essence, the above classification of demand is not particularly controversial. Liebenstein held with the Marshallian view that it is not within the competence of the economist to investigate what he termed the psychology of non-functional behaviour. However, his contribution was important in that he did go on to attempt a theoretical explanation of the consequences of demand which is motivated primarily by the utility of external effects and offered a formal analysis of the so-called Veblen effect.
In seeking to explain the effects that conspicuous consumption has on the demand function, Liebenstein suggested that the essential characteristic of such behaviour is that the utility derived from one unit of a commodity employed for purposes of con-spicuous display derives partly from the inherent qualities of that unit but predominantly from the price paid for it. Price can therefore be divided into two categories"real" price and "conspicuous" price. The real price refers to the price paid by the consumer in terms of money whilst the conspicuous price is the price other people think the consumer paid for the commodity and which therefore deter-mines its conspicuous consumption utility. In markets where there is perfect in-formation with respect to product prices, these two prices will, it is argued, be iden-tical but when such information is imperfect or when some element of price bargain-ing is allowed in the transaction process then real price and conspicuous price can be significantly different.
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Given these dual-price assumptions, it is now possible to derive a market demand curve for products subject to conspicuous consumption. Figure 1 summarises this process. P1, P2 ....Pn represent actual or "real" prices facing the consumer whilst Pc1, Pc2....Pcn stand for the expected "conspicuous" prices. The demand functions of individual consumers can then theoretically be drawn around each conspicuous price and these can be summed to obtain a market demand curve (D1 for instance in-dicating the quantities demanded at alternative (real) prices if all consumers ex-pected a conspicuous price of Pc1).
These market demand curves (D1 Dn ) will, up to a point, shift to the right as the expected conspicuous price increases. It then follows that on every curve there is only one point which can be an equilibrium point (assuming consumers possess ac-curate market information)that is, the point where the real price is equal to the conspicuous price (i.e., where P1 = Pc1; Pc2 = Pc2; Pn = Pcn)- The locus of these equilibrium points therefore (E1 , E2...E") produces the demand curve Dv.
The price effect and the Veblen effect of a price change can now be separated. Assuming a change in price from P4 to P3, this will reduce the quantity demanded by RS. The price effect is to increase the quantity demanded by ST if no consumer reconsideration of the conspicuous price takes place. However, when the price does in fact fall from P4 to P3, there is necessarily a reassessment of the conspicuous price from Pc4 to PC3, and a number of buyers will therefore leave the market because of the reduced utility derived from the product at the lower conspicuous price. The Veblen effect is therefore RT(or - TR).
The Dv curve will be positively or negatively inclinedor a mixture of both depending on whether, at alternative price changes, the Veblen effect is greater or less than the price effect. It is possible, therefore, that in one portion of the curve one effect may predominate whilst in another the reverse may be true. Liebenstein argued, however, that in most cases the curve will be shaped like a backward S, either as a single or double segment.
These curve shapes are explained as follows. First, it is assumed that there must be a price so high that no units of the commodity will be purchased owing to the income constraint. Second, there is assumed to be some "point of satiety" for the good. It therefore follows that some portion of the curve must be monotonically decreasing if there exists some minimum price at which the Veblen effect is zeroi.e., if there is some price at which the commodity would cease to have any value for purposes of conspicuous consumption. If this last assumption does not hold, however, then the shape of the curve would be significantly different and would allow for an upward-sloping market demand curve up to the point at which the effect of high prices and income constraints combine to incline the curve negatively. In Liebenstein's view, the possibility that such an exceptional demand relationship would, in fact, exist for conspicuous goods is taken to be remote and is effectively discounted.
Liebenstein summarised his work by proposing that for certain appropriate con-spicuous products demand can be subject to one or a combination of the four effects identified in his analysisnamely bandwagon, snob, price and Veblen effects. For every price change, two positive and two negative effects are possibletwo which will tend to increase the quantity demanded and two which will tend to decrease it.
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The direction of the effects will in turn depend on the relative strength of the Veblen effect against the price effect:
"The Veblen and the price effects will depend directly on the direction of the price change. An increase in price will therefore result in price and bandwagon ef-fects that are negative, and in Veblen and snob effects that are positive, provided that the price effect is greater than the Veblen effect; that is, if the net result is a decrease in the quantity demanded at the higher price. If on the other hand the Veblen effect is more powerful than the price effect, given a price increase, then the bandwagon effect would be positive and the snob effect negative. The reverse would of course be true for price declines."
Liebenstein's explanation of the so-called Veblen effect remains the most com-prehensive to date. However, his paper is open to certain criticism. Firstly, the analysis assumes that consumers haveor are able to obtainperfect knowledge about conspicuous pricesi.e., it assumes that the consumer knows with certainty what other people will think he paid for a particular commodity. As a result, the real price is necessarily equal to the conspicuous price at equilibrium points on each de-mand schedule. In the real world, however, conspicuous consumers cannot be cer-tain of the reaction of others to purchases of status goods as market information is always less than perfect. The situation is further complicated by the fact that, for many goods sold as conspicuous status products, price information is often deliberately withheld from third parties.
Secondly, Liebenstein defines conspicuous products as "semi-durable or durable goods" and seems to imply that the analysis holds true only for goods of this classgoods usually of high relative cost. However, many products which can be seen to have considerable appeal for conspicuous consumers are non-durable goods which, although socially visible, have relatively low money values when compared with more durable commodities.
Finally, and on a more general level, Liebenstein demonstrates the difficulty of at-tempting a detailed study of conspicuous consumption at the aggregate or market level. This is primarily because of the assumption that conspicuous consumers' motives are identical and therefore additive. In practice, there is a multiplicity of motives underlying acts of conspicuous consumption and these motives cannot sen-sibly be explained in aggregate terms. It would seem preferable to attempt an ex-planation of the market consequences of such behaviour only in general terms and to concentrate detailed study at the level of individual demand behaviour. Whilst Liebenstein gives some attention to the origin of individual demand schedules he is perhaps distracted by seeking to accommodate such "perverse" consumer behaviour within the received wisdom of economic theory.
The Liebenstein paper is in many ways very orthodox in its approach and poses few problems for the classical theorist. It does not question or attack traditional views of consumer Utility in arguing that whilst price and demand can be positively correlated for certain status products this occurs as a result of a process of product revaluation in response to price changesa process which in turn causes the con-sumer to "construct" not one upward-sloping demand schedule for a single product but to decide his purchases by moving (upwards) across several downward-sloping demand curves which relate to a "product" perceived as "new" at different price levels.
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After Liebenstein: 1950-70 Despite any shortcomings in the Liebenstein view of conspicuous consumption (and it needs to be remembered that he was concerned not only with the Veblen effect but with several other forms of non-functional demand) his paper could have been ex-pected to prompt some greater interest in the subject. In the event, there was no fur-ther discussion of non-functional demand in general or of conspicuous consumption in particularindeed, the whole area of non-economic consumer behaviour was largely ignored throughout the 1950s. Although the meaning of "utility" was still occasionally questioned, attention was directed more towards the problem of subor-dinate choices and their relationship with first-order indifferencean issue which had been developed by Little and others many years previously.
The growing unease with which several distinguished economists accepted classical utility theory did, however, have some limited effect. In 1961, Houthakkersurveying "the present state of consumption theory"was oblig-ed to acknowledge the existence of non-economic preference formation and in par-ticular the role of social interactions on the content of preferences. Recognising that there was little theoretical explanation of irrational behaviour in economics he con-ceded that:
"The formation of preferences is to some extent a social process, in which imita-tion and differentiation are important elements. The formation of preferences itself is usually held to be outside the realm of economic theory but some of the consequences of social interaction are nevertheless of economic interest."
Referring to the work of Duesenberry and his theory of the demonstration effect, however, Houthakker suggested that there may well be a perfectly ra-tional economic explanation of such behaviour and argued that when the budget constraint on the individual is properly taken into account the consequences of social interaction may not be so straightforward as they seem at first sight. He concluded that the best that could be said at that time (1961), however, was that social interaction may produce patterns of correlation in the variation of preferences among individuals and he pressed for more research into the whole area of non-economic preference formation.
Again, Houthakker's invitation met with no immediate or significant response. The next paper of any significance which focused on the more irrational elements of demand formation appeared in 1968 when Kalman explored consequences for the theory of consumer behaviour which could arise when prices enter the utility func-tion of individuals. Kalman's paper succeeded in establishing a "special case" theorem which was able to accommodate the fact that a high price could be seen as a positive product attribute. However, his analysis is only of limited value in so far as conspicuous consumption theory is concerned because no satisfactory distinction is made between two very different forms of price/quality associationthose of the Veblenian conspicuous consumer who sees price per se as an element of product quality and those of the more "rational" buyer, identified and described by Scitov-sky, who takes price to be an indicator of tangible product quality (i.e., as an in-dicator of product utility in use) rather than of social value.
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1970-80 : Scott and Miller Kalman's work on price/quality relationships was followed independently by Alcaly and Klevorick who did,- in fact, succeed in distinguishing between the physical and social quality implications of product prices and who developed the theme that prices are "characteristics" of goods in a Lancaster-type model. After 1970, however, interest in non-functional demand preferencessuch as it wasturned away from the complications of price-determined utility and towards the possibility that an individual's utility could well depend not only on his own rate of consump-tion but also on whether that rate of consumption compared favourably with the consumption levels of others.
In an article which examined such interdependent utilities, Schall drew atten-tion to the fact that there was ample evidence to show that dependence characterises much of economic behaviourinter alia, the nature of demand for many goods. However, his subsequent analysis dealt exclusively with two-party, two-good situa-tions which have little significance to the special case of conspicuous consumption.
In 1972, Scott identified what he claimed were two conflicting characteristics in consumer behaviourfirstly, an element of avarice which encourages the in-dividual to maximise his happiness by consuming more than others and, secondly, an element of altruism which produces a desire to see others with a plentiful supply of goods even if this supply remains inferior to one's own. Scott argued that for most individuals both elements influence decisions to purchase and consume and that some balance is found between the two partially conflicting needs.
The Scott analysis was primarily concerned with explaining how interdependent second-party preferences cause variations in quantities demanded between and amongst individuals. Whilst his paper did not address the phenomenon of con-spicuous consumption directly, some interesting points can be drawn from the work in so far as ostentatious display is concerned.
The conspicuous consumer is often characterised as an individual whose preoc-cupation with status and with wealth display causes him to have little if any social conscience (or "altruistic feeling") and to be entirely self-centred. It is also often assumed that the only limit imposed on such consumersand the only limit which is recognised by the consumers themselvesis that of income or wealth. In Scott's analysis, therefore, the conspicuous consumer has to be seen as an individual who discounts altruism entirely in favour of avarice; in essence, being happier is a func-tion of being richer and of displaying this wealth through consumption of status goods. In the absence of any serious wealth limitations, moreover, there is no prac-tical upper limit to this avaricious consumption.
Whilst this "unlimited" conspicuous consumer may seem plausible in theory, Scott showed that in practice such behaviour cannot be sustained even by those few who need to acknowledge no income or wealth constraint. Firstly, it is reasonable and necessary to suppose that a majority of conspicuous consumers are marginally altruistic and would not be totally indifferent to the social and economic welfare of others. Personal altruism to any degree will impose limits on levels of conspicuous behaviour. Secondly, even assuming a purely avaricious conspicuous consumer of unlimited wealth, limits to his propensity to consume conspicuously will ultimately
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be imposed by other more altruistic members of the society who may demand minimum levels of social welfare for the community as a whole. The altruism of the majority to which Scott referred will generate resentment of any excessive con-spicuous display undertaken in conditions of general social and economic depriva-tion and will make such behaviour increasingly unproductive, producing hostility rather than admiration and social deference in others. In the real world, therefore, limits to ostentatious display will be imposed either by the individual conspicuous consumer or by the wider society in which he lives.
Since the Scott article was published in 1972, only two further papers of any significance have explored the nature and consequence of seemingly irrational, non-functional, demand behaviour. Pollak presented a paper in 1977 in which he ex-amined price-dependent preferences and attempted to build on the work of Kalman. However, in his analysis he also adopted the Kalman assumption of "homogeneous" price/quality associations (i.e., price was taken to indicate tangible product quality rather than social product quality) and so the real contribution to conspicuous consumption theory was minimal.
Of greater interest, however, was a paper written by Miller on the relationship between status goods and luxury taxesa study which added considerably to the very thin literature on the economics of conspicuous consumption and which added a further dimension to the subject in that it examined the fiscal and excise implica-tions of such behaviour.
In considering the effects of taxes on luxury goods, Miller was one of the few ex-plicitly to recognise that status goods are purchased primarily because of their ef-fects on other individuals and then to base his analysis on such an assumption. He argued that the purchase of status goods generates both gains and lossesgains for the purchaser through enhanced status but losses, firstly, for those who do not have (i.e., cannot afford) the status model and, secondly, for those who may already possess the product and who find its prestige marginally reduced through another person's having acquired it.
Miller then went on to argue, less convincingly, that gains from conspicuous con-sumption will tend to equal lossesi.e., that whenever a new status good is purchas-ed the losses of other individuals will be equal (in social utility terms) to the gain of the person purchasing the goodsand that therefore the purchase of status goods has a zero effect on the total utility of society. Miller himself did concede, however, that he was only "inclined to believe" that this was the case and offered no convinc-ing evidence in support. In reality, his approach ignores the fact that in most societies there will be a significant number of individuals who are not at all status-motivated (exclusively "altruistic" in Scott's terminology) and for whom overt status-purchasing in others is unacceptable and is seen to be detrimental to overall social welfare. Thus while a single instance of conspicuous consumption may have an insignificant effect on total social utility the cumulative effect of many status pur-chases will produce aggregate social utility losses which far outweigh any individual status gain.
Miller was able to show that demand and supply of status goods intended in part for conspicuous consumption can be managed not only by companies seeking to maximise their sales and profits but also by governments whose motives may be
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more concerned with social welfare and the overall public interest. Indeed, by being able to control status good prices through taxation, the central planning authority is able to regulate this market segment if it so wishes and can effectively control quan-tities purchased and supplied.
The Miller paper is interesting in another respect in that it also explored the possibility of explaining preferences and demand for status goods in terms of classical indifference curve analysis. The problem with this approach is of course that classical theory assumes independent utility functionsi.e., with the single-good situation it seeks to chart a preference between money (income) or goods. Miller showed that because of the interdependence between wealth and status goodsthat is, because preferences for any particular status goods are price-dependent and are positive in direction (the higher the price the more attractive the product)then indifference curve analysis is not possible. If, and when, the utility of a good is affected by its price, then not only are we concerned with interdepen-dent as opposed to independent utility functions but the perceived nature of a status good changes as price changes. Hence "new" products are being created as prices vary and it becomes impossible to construct sets of indifference curves which are linked, implicitly and explicitly, to a single unchanging product.
In concluding that demand for status goods cannot usefully be explained in terms of indifference curves, Miller was in line with many other economists. However, unlike many others, he was prepared to argue that the fact that classical theory is unable to accommodate such behaviour provides no basis for dismissing con-spicuous consumption as trivial and irrelevanta tendency which has been very marked over the years and which has reduced research into such exceptional con-sumer behaviour to a minimum.
Summary and Conclusions The foregoing examination of references to conspicuous consumption both within and outside economic theories of consumer demand has perhaps succeeded most of all in establishing that treatment of the subject in the economic literature is remarkable largely by its absence. This lack of interest in the subject is, in fact, repeatedly commented upon by the few writers who have given any serious attention to such exceptional consumer behaviour. In his 1945 paper, Scitovsky suspected that "economists are wont to minimise the importance of this factor (i.e., price-dependent preferences) fearing the havoc it may wreak with the whole theory of choice" . Chipman (1960) referred to the view of many fellow economists that concern with interdependent and price-dependent utilities is "hairsplitting" and that such exceptional behaviour "is of little practical difference". And as late as 1977, Pollak conceded that "the literature on price-dependent preferences (remains) sparse" and that there had been little attention given to the subject since Scitovsky.
Given that the number of studies into irrational consumer behaviour in general and into conspicuous consumption in particular have been disappointingly few, it is nevertheless possible to evaluate the more significant contributions which have been referred to in this article. The first and most apparent comment which can be made concerning the literature is that Marshall's view that social and psychological motives
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underlying certain acts of consumption can be of no concern to the economist has certainly prevailed in so far as studies of conspicuous consumption are concerned. The utility value to the consumer of ostentatious economic display and of status-seeking purchasing and consumption is given no real attention and the "need for prestige" which motivates such behaviour is accepted without further examination. This non-involvement with consumer attitudes and with preference formation is predictable and to some extent defensible and it is reasonable to suppose that the greater contribution in this particular area should be coming from behavioural scientists. Even so, the lack of interest or discussion on the part of those few economists who have shown a specific interest in conspicuous consumption is disap-pointing and weakens the foundations of their analyses into how such "irrational" behaviour expresses itself in the marketplace.
Secondly, and in part as a consequence of the refusal to examine needs and motivations, a majority of the studies of perverse demand attempt to explain such behaviour in aggregate (market) terms rather than at the level of the individual con-sumer. Liebenstein's paperpossibly the most constructive analysis to dateis weakened by his attempts to provide a "market" explanation of the consequences of conspicuous consumption which has to assume that conspicuous consumers as a whole have identical motives and identical price perceptions. It is, in fact, highly improbable that aggregate demand schedules can be derived for conspicuous con-sumers as a group, but the lack of enthusiasm for economic analysis at the personal (micro) level inevitably directs research towards aggregate explanations of non-additive behaviour. Whilst non-additivity has often been recognised in so far as price-dependent preferences are concerned, a review of the literature quickly confirms that "additive" assumptions are often made in seeking to explain such behaviour.
Taken overall, other significant shortcomings of the various studies of non-functional demand must be recognised. The treatment of conspicuous consumption is minimal in part because of the tendency of those economists interested in atypical demand patterns to identify price-dependent preferences with a wish on the part of consumers not to consume conspicuously but to use price as a surrogate indicator of product quality (i.e., product utility in use) in'coming to a purchase decision. Scitov-sky, Chipman, Kalman and Schall, for example, were all primarily concerned with this latter interpretation of the price-quality association and spent little time in ex-amining the possibility that a high price per se can be an attractive product attribute. Consequently, a large part of the literature on price-dependent preferences is not relevant to conspicuous consumption.
It has already been noted that interest in preference formation and in the measure-ment of conspicuous consumer utility has been minimal. However, in those studies which do focus specifically on the conspicuous consumer, there tends to be an unac-ceptable bias even in treatment of the economic determinants of conspicuous con-sumption.
In seeking to explore the economics of conspicuous consumption, two factors would seem to be of fundamental importancenamely, product prices and personal incomes. Price decides the social status of a particular product whilst price relativities
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determine which products are relatively more attractive in status terms. Similarly, income measured in absolute terms decides an individual's ability to consume con-spicuously whilst income relativities decide his motivation.
Notwithstanding the importance and obvious interdependence of prices and in-comes in determining the incidence of conspicuous consumption, economists have clearly tended to focus very much on price considerations and have largely ignored the income effects on such behaviour. This is perhaps due to the fact that prices are more immediately related to the question of how conspicuous consumption manifests itselfi.e., with the consequences of demand for status goodswhilst ab-solute and relative income levels move analysis nearer to such factors as the oppor-tunity and motivation to conspicuously consume, subjects which can be seen as more sociological than economic. Whatever the reason, studies to date have neglected income effects to an unacceptable degree and have consequently produced only partial explanations of the economics of conspicuous consumption.
With respect to price considerations, there are more significant contributions which establish, inter alia;
(1) that socially-conditioned consumer behaviour implies interdependent rather than independent utility functions;
(2) that preferences associated with status-seeking consumption (including con-spicuous consumption) are price-dependent;
(3) that when the utility of a good is affected by its price, the status of the good changes as its price changes in absolute and relative terms;
(4) that status-inspired behaviour produces bandwagon, snob and Veblen effects and that, through the price mechanism, bandwagon effects move in the op-posite direction, and snob effects in the same direction, as Veblenian con-spicuous consumption;
(5) that, for the conspicuous consumer, high prices appear, at the very least, less prohibitive than to the utility-seeking buyer and, at the other extreme, can be seen as a genuinely attractive product attribute;
(6) and finally, that the higher tolerance, acceptance or approval of high prices produces a paradox whereby taxes levied on socially-visible, conspicuous products may increase the relative attractiveness of these commodities and lead to an increase in demand on the part of conspicuous consumers.
In summary, the contribution of economic theorists to the study of conspicuous consumption has been disappointing and offers only a partial explanation of such behaviour. There is little or no discussion of "pure" conspicuous consump-tionLiebenstein and Miller, for example, both assume that most or all status-seeking purchasers are interested to some degree in obtaining a certain consumption utility from their socially-visible purchases. However, this is reasonable in so far as modern, affluent societies are concerned, for it can be argued that pure ostentatious display has been largely displaced in such societies by modified conspicuous con-sumption undertaken by income-constrained (middle/lower middle class) buyers for
16 IJSE 10,3
whom utility in use will enter into the process of product evaluation. The economic literature, in focusing on the price implications of conspicuous con-
sumption, does go some way to offsetting the inadequacies of those behavioural analyses of non-functional demand which concentrate almost exclusively on status-seeking motivations and which pay little or no attention to product price considera-tions. At the same time, there is little economic contribution in so far as income ef-fects are concernedanother area neglected in behavioural theories.
Overall, economic analysis of that consumption which is price-dependent and par-tially status-inspired is itself only partial and offers no comprehensive and satisfac-tory explanation of non-functional conspicuous consumption. At best, it provides a structure within which the price and income effects on conspicuous consumption behaviour may be better identified and evaluated.
* * * * * * * * *
References 1. The term "conspicuous consumption" was first used by Thorstein Veblen in his Theory of the
Leisure Class published in 1899. Veblen was concerned, inter alia, with what he considered to be the socially unacceptable levels of ostentatious display which were much in evidence in the United States towards the end of the nineteenth century. So strong is the association with Veblen that con-spicuous consumption is often referred to as the "Veblen Effect".
2. See Mason, R.S., Conspicuous Consumption, Gower Press, New York, St Martin's Press, 1981. 3. Scitovsky, T., "Some Consequences of the Habit of Judging Quality by Price", Review of
Economic Studies, No. 2,1945, pp. 1-105. 4. Duesenberry, J.S., Income, Saving and the Theory of Consumer Behavior, Cambridge, Mass.,
Harvard University Press, 1949. 5. See, for example, Reder, M., Studies in the Theory of Welfare Economics, New York, Columbia
University Press, 1947, p. 64: "There is another type of external repercussion which is rarely, if ever, recognised in discussions of welfare economics. It occurs where the utility function of one in-dividual contains, as variables, the quantities of goods consumed by other persons."
6. Liebenstein, H., "Bandwagon, Snob and Veblen Effects in the Theory of Consumer's Demand", Quarterly Journal of Economics, Vol. 64 No. 2, May 1950, pp. 183-207.
7. Indeed, Nicosia and others believed Liebenstein's paper to be the only analysis to develop Veblen's work directly.
8. More accurately, the conspicuous price should be the price that the consumer thinks other people think he paid for the commodity.
9. Liebenstein, H., op cit., p. 205. 10. Ibid.,p.205. 11. Little, I.M.D., "A Reformulation of the Theory of Consumer's Behaviour," Oxford Economic
Papers, Vol. 1, 1949, pp. 90-99. 12. Houthakker, H.S., "The Present State of Consumption Theory", Econometrica, Vol. 29, Oc-
tober 1961, pp. 704-740. 13. Ibid.,p.773. 14. Duesenberry, J.S., op. cit. 15. Houthakker, H.S., op. cit., p. 734. 16. Ibid., p. 734. "There is much to be said for regarding the explanation of the content of preferences
(that is, the question of why an individual prefers one bundle of goods to another) as outside the economist's competence. Nevertheless, there is also a danger in such delimitations of responsibili-ty, namely, that the problems thus excluded may not be studied at all. It is easy to say they belong
Conspicuous Consumption 17
to psychology, but this does not mean that psychology will find them sufficiently interesting to look into them. Indeed, the whole concept of preference as used by economists may be hard to fit into the psychologist's framework."
17. Kalman, P.J., "Theory of Consumer Behaviour when Prices Enter the Utility Function", Econometrica, July-October 1968, pp. 497-510.
18. Scitovsky.T., op cit. 19. Alcaly, R.E. and Klevorick, A.K., "Judging Quality by Price, Snob Appeal, and the New Con-
sumer Theory", Zeitschrift fur Nationalekonomie, July 1970, Vol. 30, pp. 53-64. 20. Schall, L.D., "Interdependent Utilities and ParetoOptimality", Quarterly Journal of Economics,
Vol 86, No. 1, February 1972, pp. 19-24. 21. Scott, R.H., "Avarice, Altruism and Second Party Preferences", Quarterly Journal of
Economics, Vol. 86No. 1, February 1972, pp. 1-18. 22. Pollak, R.A., "Price Dependent Preferences", American Economic Review, March 1977, pp.
64-75. 23. Miller, E., "Status Goods and Luxury Taxes", American Journal of Economics and Sociology,
1975, Vol. 34 No. 2, pp. 141-154. 24. Ibid., p. 145. 25. The cumulative hostility to "Gilded Age" conspicuous consumption in the United States il-
lustrates the point (see Mason, R.S., op. cit., Ch V). 26. Miller, E., op. cit., pp. 148-149. In arguing this, however. Miller is accepting a particular inter-
pretation of conspicuous consumptioni.e., that price changes produce "new" productsand is implicitly rejecting the concept of upward-sloping demand curves.
27. Scitovsky, T.,op. cit. 28. Chipman, J.S., "The Foundations of Utility", Econometrica, Vol. 28 No. 2, April 1960, p. 222. 29. Pollak, R.A., op cit., p. 65. 30. Liebenstein, H., op. cit. 31. See, for example, Chipman, Kalman and Schall, op. cit.