[Opinion] The Veblen Effect

A Korean man from New York once visited a millionaire customer in Hong Kong and had transactions annulled. He looked at the customer’s Bentley and said, “Is your car better than a Benz?” To the ostentatious millionaire who drove a car worth over 300 million won, this was hugely offensive. The millionaire then boasted, “I spent 5 million dollars to renovate a 25 million dollar house,” but was met by the remark, “Is that in Hong Kong dollars? Does an expensive house need so much work?”

The U.S. dollar is worth 7.8 times the Hong Kong dollar. What the question really asked was whether 23 billion won home was actually 3 billion won, injuring the millionaire’s ego.

In Korea as well, 4 million won jeans and 150 million won television sets sell fast. A “brand name” apartment complex sells out more quickly with a higher jump in prices.

The logistics, finance, construction, and foreign car industries are targeting the uppermost reaches of society with what is known as VVIP (very very important person) marketing.

According to research conducted by KOTRA, the BMW 750i is 75,800 dollars in New York, 94,450 dollars in Tokyo, and nearly twice this price, 184,400 dollars, in Seoul. VVIP marketing is especially powerful in Korea.

The more expensive “ostentatious consumption” products are, the more they attract buyers. This is the “Veblen Effect,” coined by an American economist and social scientist Thorstein Veblen who criticized the over-consumption trend in the United States around the 1900s. The prices of these products do not drop and consumers pay anyway. Swindlers manipulate this Veblen effect. Last year, there was a “Vincent watch” incident where 330,000 won Chinese watches were passed off as watches exclusive to “European royalty,” and sold at 5 million won apiece.

There is also the “Diderot Effect” that makes those who drive expensive cars feel the need to buy clothes or food of equal standards. A French philosopher Denis Diderot received a lounge robe as a gift and replaced his study table and other possessions to match it. The “Bandwagon Effect” is buying products because they sell well, and the “Snob Effect” is when you don’t buy products because everyone else is buying them. Where do you fit in?

Editorialist Hong Gwon-hee, konihong@donga.com