Economic Theory Explained by Football – Part 7 – The Veblen Effect

In the seventh of his deep-thinking articles, our in house Economist Stuart Fuller demonstrates why lowering ticket prices is a bad thing.

Hands up who wants a Rolls-Royce?  Ok, apart from Cynical Dave and Deaks who can’t drive.  We would all love to own one, right?  But it is just a dream for when we win the lottery, or England enjoys Sahara-like conditions and the solar panels on the roof of the Main Stand pay us a fortune.  But what if they reduced the price by 90%?  Would you still want one then if every Tom, Dick and Deaks could afford one?  Second thoughts eh?  That is the Veblen effect for you.

Thorstein Veblen* came up with this theory back in 1899.  Sheffield United had just won the FA Cup and paraded the trophy at Bramall Lane.  Veblen was unhappy that only a few thousand fans were in the ground, singing a version of Annie’s Song that was so cruelly credited to John Denver nearly eighty years later.  He hated the fact that it was an “Exclusive” club, with ticket prices kept high to keep out the riff-raff.  “Let them eat Eccles Cake” he famously said, referring them to becoming Sheffield Wednesday fans.

Veblen’s theory was relatively simple.  He noted that some types of luxury goods, such as high-end wines, designer handbags, luxury cars and tickets to see United were prestige items, or as he liked to call them, Veblen goods.  He noted that in decreasing their prices, people’s preference for buying them also diminished because they are no longer perceived as exclusive or high-status products. Similarly, a price increase may increase that high status and perception of exclusivity, thereby making the goods even more preferable.  So he argued that Sheffield United should actually increase their ticket prices to drive up attendances.

Even a Veblen good is subject to the dictum that demand moves conversely to price, although the response of demand to price is not consistent at all points on the demand curve meaning that it is not simply good enough for a football club to slash its prices as people will not see any value at all in what is now on offer (See our previous article on Pay What You Want Theory).

It seems someone in the Premier League found Veblen’s original work in a drawer when moving desks at Premier League HQ a few years ago and passed the idea across to the Premier league clubs who immediate put their ticket prices up thinking the fans will flock through the gates.  They were wrong, Veblen was wrong and yes, we all want a Rolls-Royce for the price of a Lada.

And that, ladies and gentlemen, is Veblen Theory in a nutshell.

*Whilst Veblen came up with the theory, it is unclear whether he really was a Sheffield United fan.