UC Davis Agricultural and Resource Economics

Robin Goldstein, University of California Agricultural Issues Center

Veblen Attributes in the U.S. Retail Beer, Wine, and Restaurant Markets

Date and Location

Tuesday, May 14, 2019, 4:00 PM - 5:00 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

Thorstein Veblen, author of *The Theory of the Leisure Class* (1899), is best remembered for the phrase "conspicuous consumption." Veblen is memorialized in economics by the “Veblen effect,” a term coined by Harvey Leibenstein to describe the behavior of wealthy show-offs ("Veblen consumers") who demand *more* of a product if its price (and thus its value as a conspicuous display of wealth) *increases, *thus generating an upward-sloping demand curve. The "Veblen effect" is one of the two classic examples of violations of the Law of Demand commonly mentioned in introductory economics textbooks. Here I begin by reviewing Veblen’s theory of consumer behavior, and I find that Leibenstein misunderstands Veblen’s ideas and contradicts Veblen’s empirical predictions. In fact, in the QJE article first introducing the “Veblen effect,” Leibenstein (1950) does not cite Veblen as one of his 17 references. I offer an alternative account of Veblen-type consumer behavior that is based around the idea that there are some "Veblen attributes" in nearly all consumer goods, and that these "Veblen attributes" have broad appeal to large swaths of consumers, not just to wealthy show-offs.

I divide the attributes of consumer goods into three categories: “useful", "decorative" , and “invisible” attributes. Useful attributes are material (physically verifiable by the consumer) and functional (playing a role in the satisfaction of the good's intended function). Decorative attributes are material but "non-functional" in the sense that do not further the satisfaction of the good's purpose (e.g. the logo sewn onto a shirt). Invisible attributes are immaterial: they cannot be detected by the consumer's unaided sensory apparatus, but rather rely on external information to be verified (e.g. an expert rating of a wine, or the number of bottles produced). I refer to decorative and invisible attributes, together, as the “Veblen attributes" of goods.

My empirical project is to identify and measure decorative and invisible Veblen attributes in the present-day markets for beer, wine, and restaurants. I present results generated by several techniques. In a consumer survey with about 3,000 subjects, I elicit U.S. consumers' stated tendency to pay for a bottle of wine and a six-pack of beer, and I compare the distribution of responses to the actual distribution of prices. In a triangle test for sensory discrimination, I find that consumers are unable to distinguish between the "useful" attributes (i.e. sensory beer attributes) of three competing beer brands at different price points. I thus attribute the price differences to these beers to their Veblen attributes. Next, using a novel design I call "half-blind tasting," I explore the influence of the "placebo response" to a high price tag and the "nocebo response" to a low price tag on wine sensory experience and preferences.

Finally, in an undercover experiment, I explore the standards for the *Wine Spectator *"Awards of Excellence" by submitting an imaginary restaurant for consideration as one of the world's best wine restaurants. Using hedonic price regressions on a data set of New York City restaurant prices, ratings, and other information from the *Zagat *restaurant guide series, I assess the comparative effects of "useful," "decorative," and "invisible" attributes on restaurant prices and food ratings. Surprisingly, amongst relatively inexpensive restaurants, I find an inverse relationship between restaurant price and food rating, holding all other factors constant, and I account for this price-food rating inversion using the framework of useful vs. Veblen attributes.

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