Demand, law of demand, Giffen and Veblen effects. Part 2. Non-functional demand and demand puzzles

The present work is a brief review of domestic educational and scientific literature upon the issues of non-functional (according to Leibenstein’s classification) demand. To take into account the influence of social factors, the concept of conspicuous consumption by T. Veblen is used.

Attention is paid to inaccurate and controversial statements found in literature, as well as to cases of incorrect interpretation of some types of non-functional demand formed under the influence of social determinants. First of all, this refers to the practice of incorrectly interpreting the Veblen effect as an exception to the law of demand and conspicuous consumption as irrational behavior. A number of recent studies convincingly indicate that conspicuous consumption is capable of exerting a favorable psychological effect on the individual who exhibits it, thereby contributing to an increase in their level of well-being.

Using the example of the dissertation services market, it is shown that buyers of custom dissertations who often experience amazing “psychological metamorphoses” subsequently receive the opportunity to successfully convert the acquired symbolic capital into certain privileges. The mathematical model of the Veblen effect proposed in the article allows asserting that the Veblen effect may as well manifest itself as a result of the rational choice of the consumer who may be an individual with any level of income, except for the lowest, completely excluding the possibility of any choice of consumed goods. It is shown that in some cases, to explain the dynamics of demand for a particular good, it is sufficient to take into account the “competition” of the Veblen, price, bandwagon, and snob effects without any reference to paradoxes or exceptions to the law of demand.

Along with this, examples of consumer behavior and demand are given, for the interpretation of which Leibenstein’s classification is insufficient.