Bandwagon,Snob and Veblen Effects In The

Theory of Consumers’ Demand

Objective

• Incorporating the following phenomenon in the theory of consumers’ demand

- Desire of consumers to be in style

- Attempts to obtain exclusivity

- Conspicuous consumption

Demand Theory Reconsidered

• Market demand curve may not be the lateral summation of individual demand curves in some cases

• Interpersonal aspects of utility and demand

• Impact of Non functional utilities

Assumptions

• Static Analysis

- A static situation is one in which the order of

events has no significance

• Income and expenditure patterns repeat themselves in every period

Demand Classified

Demand

Functional Non Functional

External effects on utility Speculative Irrational

Bandwagon Effect

• Extent to which demand for a commodity is increased due to the fact that others are also consuming the same commodity at a given price

• Be in sync with the times

• Eg: Ronaldo’s hairstyle during the football world cup

Conceptual Experiment

• Assume that an individual’s demand is a function of the total market demand at given prices

• Obtain individual demand data from consumers’ (given market demand at fixed price)

• Repeat the above process using the preceding survey data as a base

Implications

• Diminishing marginal external consumption effect

- Demand does not increase indefinitely

- Income constraint

• Concept of equilibrium demand curve

- Marginal external consumption effect for all consumers’, but one,at all alternate prices is equal to zero

The Snob Effect

• Extent to which the demand for a consumers’ good is decreased owing to the fact that others are consuming the same commodity

• Reverse of Bandwagon effect

Veblen Effect

• Extent to which the demand for a consumers’ good is increased because it bears a higher than a lower price

• Veblen effect is a function of price

• Real price vs. Conspicuous price

- Real Price is paid in monetary terms

- Conspicuous price is what other people think

consumer paid for the commodity

Thank You

• Rohan Warey

• Section A - 45