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Luxury Paradox

Finance & Investing

Luxury Paradox

Model #0713Category: Finance & InvestingSource: Thorstein VeblenDepth to apply:

4 min read

On this page

Core Idea
How to See It
How to Use It
Founders & Leaders
Connected Models
One Key Quote
Summary & Further Reading

Contents

1. Core Idea
2. How to See It
3. How to Use It
4. Founders & Leaders
5. Connected Models
6. One Key Quote
7. Summary & Further Reading

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Reading lists

Bernard Arnault's Playbook in Print: Essential Reading for LVMH and Luxury Strategy

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On this page

Core Idea
How to See It
How to Use It
Founders & Leaders
Connected Models
One Key Quote
Summary & Further Reading

·Finance & Investing

Section 1

Core Idea

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).

This connects to...

mental modelsSupply and Demand

Luxury Paradox applied the Supply and Demand mental model

mental modelsCostly Signalling Theory

Luxury Paradox applied the Costly Signalling Theory mental model

mental modelsPerceived Value

Luxury Paradox applied the Perceived Value mental model

mental modelsUtility

Luxury Paradox applied the Utility mental model

mental modelsQuality

Luxury Paradox applied the Quality mental model

mental modelsCost

Luxury Paradox applied the Cost mental model