Can a pizza be an exception to the law of demand?

When you go out for dinner to a restaurant to enjoy a pizza, you would normally expect to pay about $18 for a large pizza. As meals go, it represents a relatively ‘good-value’ night out.  But imagine you wanted to treat yourself and buy the most expensive pizza in the world. The Louis XIII pizza created by Renato Viola costs $12,000.

The pizza is made with a handcrafted dough base that takes three days to prepare. The topping contains three of the most exclusive forms of caviar: Oscietra Royal Prestige, Kaspia Oscietra Royal Classic, and Kaspia Beluga. The pizza also features Norwegian lobster and seven types of cheese.  Renato Viola is one of Italy’s best Master Pizza Chefs in the world, and his pizzas have won many awards.

It is possible to categorise the Renato Viola pizza as a Veblen good. This theory was developed by the American economist Thorstein Veblen, who viewed some luxury goods as exceptions to the law of demand. As the price of a good, such as the Renato Viola pizza, increases, the quantity demanded for it increases.   

Thorstein Veblen introduced the idea of conspicuous consumption in his 1899 work, The Theory of the Leisure Class. He observed that individuals often purchase luxury goods not only for their utility, but also to display their social status. By going out to dinner and ordering a Renato Viola, it gives utility in terms of the satisfaction gained from eating the meal, but also the satisfaction of, for example, showing other people you can afford the pizza.  

The appeal of Veblen goods often lies in their function as status symbols, closely tied to concepts like conspicuous consumption and conspicuous leisure. The desirability of such goods increases precisely because they are expensive and exclusive. The status is derived from consuming Veblen goods in terms of the value people put on them, because so few people can afford them.

The same Veblen status could be applied to a Patek Philippe Grandmaster watch, which sells for around $4 million, or a Hermès Birkin handbag Himalayan Blanc, priced at $360,000.

The Veblen good concept raises interesting questions about income inequality and welfare. Producing the Renato Viola pizza will generate income to the factors of production used to produce it in the same way as any other $12,000 good. But the welfare created by the consumption of the pizza will only be for one or two people. One of the world’s leading aid agencies says it costs around $20 to feed the poorest children in the world for a school year. This means the money spent on a $12,000 Renato Viola pizza could be used to fund the provision of food to feed 600 of the poorest children in the world for one school year, compared to the welfare of the two rich diners who enjoy an opulent evening out.

Possible questions for discussion

1. How could Renato Viola's Louis XIII pizza be priced at $12,000?
2. What is a Veblen Good?
3. Why might the quantity demanded for Veblen goods increase as their price increases?
4. Discuss the implications of the consumption of Veblen Goods for economic well-being in a country.