What’s it: Conspicuous consumption refers to consumption expenditure not to maximize basic utility but to give others an impression. Long story short, people buy products because they want to show off their wealth and social status.
In conventional concepts, the goal of consumption is to satisfy needs and wants (utility). Consumers tend to be rational in making choices. They consider price and income before deciding to buy a product.
However, conspicuous consumption casts doubt on such views. It also raises doubts about the concept of a welfare economy based on consumers’ rational choice assumptions.
Example of conspicuous consumption
Thorstein Veblen introduced the term conspicuous consumption in 1899. He views that some consumption behavior is driven more by social factors than by rational economic factors. Specifically, he examines the upper classes’ consumption behavior that emerged during the second industrial revolution, which promoted their power and social prestige.
And, now, the concept applies to all consumers, not just high-end. Social status, prestige, or wealth are other motives for the consumption of products.
For example, when your friends use premium smartphones, such as iPhones, you may also buy them, even if you don’t have enough money. Due to prestige, you save some money so that it is enough to buy an iPhone.
Also, some of your friends may buy luxury watches just to show off to you. In fact, they may already own several watches.
Conspicuous consumption goal
There are many reasons why people consume just to show off. Some scholars say it is the result of capitalism, which encourages materialism as society becomes more advanced.
Others believe that the things we consume and own show who we are, whether rich or ordinary.
Veblen argues that there is a direct relationship between a person’s property and status in society. The wealth and luxuries of a person represent the honor and dignity in a society or community.
Also, Veblen claims that the goods consumed by such people tend to be wasteful. This is because prices are not proportional to the basic utility obtained from the consumption of goods.
On the contrary, the price of the product becomes utility itself. In other words, the more expensive the item, the higher the utility. Thus, ownership of these products symbolizes achievement and pride.
Furthermore, James Duesenberry argues that people buy goods and services to maintain their self-worth and follow the expectations of those around them. For example, when a person is in a high position, his colleagues might suggest buying some luxury products.
Many theories explain why people consume conspicuously. Some experts argue that it is due to the competitive nature of individuals. Ownership of luxury goods expresses the superiority of the owner over others. Therefore, people compete with each other for these items.
Other experts attribute conspicuous consumption to individual insecurity. People use luxury items to hide their personal insecurities. In this case, they believe property determines the public image and makes up for their shortcomings.
Another reason is the influence of advertising. When a product is advertised as a branded item, many people want to associate themselves with the product. It leads to conspicuous consumption because people believe they will achieve a positive self-image when buying the item.
Furthermore, according to Veblen, people consume conspicuously for two main reasons to be recognized by their peers and to attain a higher social status in society.
These two factors are a reflection of the cultural class and socio-economic conditions in which they live.
Conspicuous consumption represents the perception of a person. This concept influences individual consumption behavior. That’s because purchasing decisions are based mainly on how an outsider sees an individual.
Individuals will choose products that enhance their status in society rather than fulfill their personal needs, or at least, fulfill the basic needs. In collectivist cultures, therefore, the main striking driver of consumption is recognition by others.
Why is conspicuous consumption important
This concept is important for several reasons. First, it explains that some consumers are not economically rational in making consumption decisions, rendering the law of demand invalid. Consumers still buy some goods, even though the price goes up.
We call such goods Veblen goods, where an increase in price increases the good itself’s utility. It makes some individuals want it even more.
Second, conspicuous consumption indirectly indicates the level of economic inequality in society. It increases as some individuals become more affluent. They consume goods conspicuously to differentiate their status from most individuals.