What is the Snob Effect?

Microeconomics describes a phenomenon known as the “snob effect,” which occurs when the demand for a particular good by persons with high income is contrarily related to the demand of that good by persons with low incomes. The snob effect creates an atypical slope on the demand curve of normal goods. This effect causes both the price and demand of the goods to increase. 

In itself, the term "snob" refers to people who consider themselves superior or distinguished in a specific element or field. The snob effect relates to the behavior of people who are not necessarily distinguished in this way, but seek to acquire the certain exclusive or differentiated goods that a snob might have.

It must be emphasized that the snobbish effect causes the choices that consumers make when buying to be studied, to explain that we are not always completely rational when we choose one product over another.

To highlight some of the examples of when the snob effect phenomenon occurs, consider the following: 

  • Prestigious brand clothing. Couture or designer clothing has over-inflated prices which do not necessarily correspond to the material in which it is comprised of whether it is the raw material, machinery or human capital. The attractiveness of the brand or label, the margin of the quality of the product and the measure of its exclusivity is what allows placing exorbitant prices on these products, over-inflating its worth. As the price increases, the number of people who desire to obtain such products increases, leading to a growth of sales. The more exclusive a product seems, the more people desire it. 
  • Wine and Spirits. The perception of quality affects the price. The higher the price, the higher perceived quality of the wine, thus the more it is consumed. Luxury brands are often celebrity endorsed, causing demand to skyrocket. 
  • Luxury cars. In fairness, luxury cars do come with upgrades that an averaged priced car does not have. This would include things like fabrics and finishes, extra safeguards and enhanced technology. While these upgrades do add a tangible value, they are not essential. However, car manufacturers assure that slick marketing, celebrity endorsement and pop culture product placement reiterates the idea that only a select few can access this product.

As shown in the examples, branding, advertising and endorsements all lead consumers to have a higher perceived value and by showing desirable people enjoying these products, the more enviable lower income people become. This makes the snob effect a self-perpetuating phenomenon.

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