Wine as a Veblen Good?

Veblen good- The income effect of a price increase swamps out the opposing substitution effect, such that becoming poorer leads one to consume more of it.

Example: being poor and having to live mainly off cheap noodles.

Humans are status seeking monkeys. Same as it ever was.

I’m curious what we think the markup on Krug MV might be? Is it any different than an expensive blend bottled of MV wines (with old stock) from a respectable grower?

I’m not sure the “conspicuous consumption” angle is the right one to be applying. Certainly Veblen goods as I understand the term are not limited to goods purchased in whole or in part so that the buyer can signal “one percenter” wealth or sophistication to those who might see them with the good.

Rather, one of the main reasons wine (of all price points and production levels) is a Veblen good (as I understand the concept) is that a huge portion of wine buyers lack (or feel that they lack) the expertise/information necessary to make a quality assessment of one wine vs another and thus will accept the price of the wine as an indicator of its quality much more than they will with other goods as to which they are more confident making quality judgments for themselves.

Thus, someone who normally buys $8/mag supermarket bulk wines but who reaches for the $8/750 supermarket bulk wine further down the shelf when company is coming over, not because they’ve had both and like the latter better, but because the latter is presumed to be “the good stuff” due to it being twice the price, is demonstrating wine’s Veblen status much more than an expert wino who has tasted multiple vintages of Dom or Krug or Cristal and has formed an opinion as to which of those three he or she prefers for a splurge bubbly and shops accordingly.

Of course, someone on an expense account who knows nothing about Champagne but orders the most expensive one to show off for the client is also demonstrating wine’s Veblen status, but it’s not limited to those types of scenarios.

It’s more about giving your money to one of the richest people in the world that made their money by selling notoriously over priced chintzy shit.

That strikes me as a fun topic, but also a different topic, than wine as a Veblen good.

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I’d add a thumbs up and a heart if I could. I just searched LVMH and spewed out my new thoughts on an old thread…

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That’s not what a Veblen good is, though. A Veblen good is a product which becomes more in demand as its price rises; the quality is constant. For many (most?) products, there is normally a positive correlation between cost and quality of similar products, so in the absence of other information, it is not unreasonable to assume that the more expensive product is of higher quality. A Veblen good is a product that will sell 100 units at $X each, but 200 units at $1.5X each.

There is a longstanding debate in economics as to whether there are any real Veblen goods. The point of a Veblen good is that some people are willing to buy if the product is exclusive and doesn’t have perceived substitutes (except maybe other Veblen goods); the exclusivity will draw demand. This is why Veblen goods are associated with luxury products.

Increasing the price of a good to what the market will bear also does not make a product a Veblen good. Cristal would sell more bottles at $200 rather than $300, but (i) maybe they can sell every bottle they produce at $300 or (ii) they may have concluded that it would maximize its profits if it moved fewer bottles at $300. In either case, that doesn’t make Cristal a Veblen good.

Yes, I understand that.

A better example than the mag switcher is perhaps someone who never spends less than X on a bottle of wine and as such, never buys Funky Label Cabernet because it costs less than X, but suddenly starts buying it when it raises its price to something more than X.

The points I was trying to get across were:

  1. Veblen goods are not limited to super-expensive items bought to demonstrate/show off the buyer’s “one percenter” status; and

  2. Wine’s status as a Veblen good (if it is one) is often thought to derive from the psychological phenomenon I described above - and that any good is more likely to be a Veblen good if consumers feel they lack the ability to make price-independent judgments of a good’s quality and thus turn to price instead.

But yes, the concept is that if your wine is selling poorly at $18, just raise the price to $30 and see if sales (by volume) go up. If they do (and there are plenty of anecdotes that this happens with wine, at least in certain price bands), then you have a Veblen good.

Of course, if that doesn’t work, put an animal on the label.

While we are on economics geek out , this reminds me there is a winemaker in Veneto called Gini, making fine Soave Classico. However their wines are affordable so it’s not exactly. nominative determinism.

I don’t want to get into this too much, but again, using price as a proxy for quality does not make the more expensive product a Veblen good. One of the conditions for a Veblen good is that the quality of the product and near-perfect substitutes is known, and people are still willing to spend more for the more expensive product despite the availability of the identical or nearly identical product at a cheaper price.

To use your example, the $30 wine would only be a Veblen good if the person who bought it in the first place, liked it, went back to the store to buy more, and would buy more bottles of that wine at $30 than at $18. That’s the test of whether something is a Veblen good.