The bandwagon, Snob, and Veblen Effects


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It is also important to remember that in realizing the bandwagon, snob, and Veblen effects, the basic assumption that the consumers' consumption behavior is independent of the consumption of others, must be ignored.

The bandwagon effect is seen in cases where individuals are trying to "fit in". This effect is shown when the demand of a certain good is increased, based on the assumption or knowledge that other consumers are also consuming that same good. This effect is most easily described using the example of fashion or clothing. People most often like to have the latest fashions, and wear what is in style. They look to people whom they admire, or see what their favorite celebrities, or even their friends are wearing. The individual's desire (demand) to also own and wear the latest fashions will be increased, because they have observed those fashions as what is popular. This is a very simple way to explain the bandwagon effect, and it is an example that most people have witnessed or experienced themselves. The graph (figure 1) displaying the bandwagon effect on the demand curves of several individuals and the market demand, shows that the market demand curve is very elastic. That is, it is sensitive to price change, and also to the quantity demanded. This means that if many people are consuming a good the demand is affect greater than if less people were consuming the good. To further clarify, take the example of attending college. In an environment where most of an individual's peers are going to attend college, the individual will see college as the right thing to do, and also attend college to be like his peers. However, in an environment where most of an individual's peers are not going to attend college, the individual will have a decreased demand for college, and is unlikely to attend. This brings up the next point concerning the bandwagon effect; the taboo effect. Essentially the taboo effect displays the same type of consumer behavior, but in the opposite direction. Therefore, if one notices that a group is not consuming a certain good, that one will see the good as a "social taboo" and also not consume the good. The social taboo effect on demand is a special case. In the graph (figure 2) the demand curve crosses the x-axis into negative territory. This is implying that the consumer would have to be compensated, or paid to even consider consuming a certain good.

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This specific case may be beyond the scope of the ECON 218 course; however, it is important to understand. What is important to take away is the bandwagon effect, which is the increased demand due to others' consumption of a certain good ("mass motivation").
From the name one can determine what the snob effect implies. The snob effect is seen when an individual's demand is decreased due to the assumption or knowledge that others are consuming the good. Therefore, the individual consumer's demand is negatively correlated with the market demand. One way to think about this can be to say it is the "opposite" (but completely symmetrical) of the bandwagon effect. For example, if you notice that many people are driving "Ford" cars, due to the snob effect, your desire (demand) to drive a "Ford" car will decrease. Thus, you will likely drive a "Chevy" car, in order to be exclusive or unlike the crowd. The graph (figure 3) showing the snob effect, contains demand curves that are independent of the snob effect, and the market demand in response to the snob effect. The demand curve displaying the snob effect is very inelastic compared to the individual demand curves. An inelastic demand curve in this situation is implies that a change in price or consumption will not have a great effect on an individual who is displaying the snob effect. Note that the demand in the snob effect is referring to buyers' demand.
Finally, the Veblen effect, which is named after the scholar who came up with the theory, is form of irrational consumption. The Veblen effect is the most complex of the three "nonfunctional" external effects on demand. It affects the sociological or psychological behavior of the consumer. A basic summary of the Veblen effect might be when a consumer's demand (or consumption) of a certain good is increased when the price also is increased. This is against traditional theory of rationality. However, the consumer perceives that the good brings a higher utility at a higher price. For instance, say there are two pairs of very similar shoes in a store; everything is the same about the shoes except one pair has a small "Jordan" symbol on it. Also, the pair of shoes with the "Jordan" symbol has a price that is significantly higher than the other pair of similar shoes. A consumer who buys the shoes with the "Jordan" symbol is displaying the Veblen effect. They are willing to pay a much higher price for essentially the same product, because they think they will get a higher utility. This is just one example; there could be many more examples where consumers are overspending on products because they hope to get a higher utility from having the "cool" thing. This is irrational consumption and spurs from the individual hoping to "show off" that they have a more expensive product, even though the product may serve the same function of a much cheaper product. The graphs (figure 5 A,B,C) show the demand curves of a consumer under the Veblen effect. Notice that the shape of the demand curve is not consistent. It is less elastic than otherwise, and some portions of it may have a positive slope. The Veblen effect is based on irrational or conspicuous consumption.
This paper written by Leibenstein in 1950, describes the external effects on demand; the bandwagon, snob, and Veblen effects extremely well. Through examples and graphs the author clearly describes consumer behavior and consumer demand as it relates to sociology, welfare economics, and pure theory. One thing that must be pointed out here is that in each of the three cases, individuals are still bound by the income constraint. These theories describe consumers' demand and behavior, but in some cases the price constraints will limit the consumer's choices. In conclusion, next time you see people running to the mall to buy the latest fashion, or going out of their way to get the most exclusive product that no one else has, or overspending to get a "cool" name brand product, you will know the causes of these behaviors. The bandwagon effect, the snob effect, and the Veblen effect, respectively.


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