Cracking the Veblen Code: The Economics of Hype
In economics, a core principle is the law of demand: as price goes up, demand goes down. Yet, we constantly see products—a sneaker, a handbag, a simple t-shirt—that defy this rule. The more expensive and difficult to get they are, the more people want them.
Certain luxury goods operate under a unique economic paradox where demand increases in direct proportion to their price. These are known as Veblen goods , named after economist Thorstein Veblen. Veblen theorized that their appeal is rooted in "conspicuous consumption"—the act of purchasing items to display financial power and social status. This principle, the Veblen effect, directly contradicts the fundamental law of demand. This analysis examines how modern brands in the luxury and fast-fashion sectors strategically leverage the Veblen effect by engineering scarcity and hype to create coveted status symbols.
Blue (Traditional model): Downward-sloping demand — higher price → lower demand.
Red (Veblen model): Upward-sloping demand — higher price → higher demand (because price itself adds prestige value).
The Blueprint: Scarcity and Conspicuous Consumption
The Veblen effect hinges on "conspicuous consumption"—buying things specifically to signal wealth and social standing. To make this work, a product can't be available to everyone. Its appeal comes from its exclusivity
Supreme has perfected the modern application of the Veblen effect by engineering scarcity. With only few retail locations and a disciplined constraint of supply, its products sell out within minutes in stores and seconds online. This strategy fuels a lucrative resale market where items become more expensive after their initial sale. The result transforms the brand from a clothing retailer into a cultural phenomenon built on hype.
This "drop model" is now widespread, but the principles of scarcity and status have evolved. A recent counter-trend is "quiet luxury," where status is signaled not by logos but by extremely expensive, unbranded items. Another contemporary example is the craze for Labubu "The Monsters" Macaron series keychains from collectibles company Pop Mart. Driven by social media and influencer culture, the accessory has become a status symbol. The figures are sold in "blind boxes," creating artificial scarcity and a "chase" for rare designs that then fetch high prices on the resale market.
Fast fashion applies these principles of scarcity and urgency to the mass market. The term describes clothing designs that move quickly from the catwalk to stores to meet new trends. Brands like Zara and H&M create a sense of urgency by constantly introducing new collections. The company does not replenish its stock; instead, it replaces items that sell out with new ones, encouraging consumers to purchase an item immediately, knowing it is unlikely to be available for long.
This model of manufactured desire has significant downsides. The fashion industry is responsible for 10% of humanity’s carbon emissions. Every second, the equivalent of one garbage truck full of clothes is burned or dumped in a landfill. Veblen's concept of "conspicuous waste" is perfectly exemplified by items like the Supreme brick —a clay brick with a logo that retailed for $30 and resold for as much as $999.
A counter-movement focused on sustainability is growing, however. A shift in the millennial mindset, which may not aspire to the same status symbols as previous generations , poses a threat to the traditional fast-fashion model. The future of the Veblen code will likely depend on balancing manufactured desire with increasing demands for social and environmental responsibility.
The Veblen code is more potent than ever, expertly adapted to fuel both high-end desire and mass-market turnover. However, a widespread counter-narrative focused on sustainability and ethics is taking hold. The brands that succeed in the future may be the ones that can create desire without causing destruction—or find that modern consumers are finally choosing to crack the code themselves.
