Luxury Paradox

The luxury paradox is that for certain goods, higher prices increase rather than decrease demand — the opposite of standard economics. Luxury goods function as status signals: the price is part of the product. A cheaper Hermès bag would sell fewer units, not more, because the high price is what confers exclusivity and social signalling value. This is the Veblen effect — demand rises with price because price itself is the value proposition. The paradox holds only while the brand credibly maintains scarcity, quality perception, and social meaning. For founders, the model reframes pricing: in status-driven markets, lowering price destroys value rather than creating it. The question is whether your product operates on utility logic (lower price = more demand) or signalling logic (higher price = more demand).