Bandwagon, Snob And Veblen Effects In The[1]

1. Bandwagon,Snob and Veblen Effects
In The
Theory of Consumers’ Demand

2. Objective
•Incorporating the following phenomenon in
the theory of consumers’ demand
- Desire of consumers to be in style
- Attempts to obtain exclusivity
- Conspicuous consumption

3. 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

4. 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

5. Demand Classified
Demand
Functional Non Functional
External effects on
utility
Speculative Irrational

6. 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

7. 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

8. 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

9. 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

10. 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

11. Thank You
•Rohan Warey
•Section A - 45