What Are Luxury Goods?

Luxury goods are those goods that are perceived to have high market values and/or are perceived to be rare, special and therefore ‘elite’. In economics, a luxury commodity is a good whose demand increases more rapidly than proportionately to income, so that fixed expenses on the good become a higher proportion of income. Luxury goods, unlike ‘rivalry goods’, do not lose value with increase of income, so an investment in luxury is potentially less risky than an equivalent investment in ‘rivalry goods’. As they are desired because of their quality or rarity, luxury goods are usually held by higher-end consumers, rather than mass markets.

The term luxury can apply to any good that is perceived to have increased income, whether it increases because of improvements in technology, consumer tastes, improved infrastructure, improved distribution systems or some other factor. Luxury goods are also usually perceived to be very exclusive – something that is not available to everyone else. Luxury goods tend to be in short supply because they tend to be produced in small quantities, with careful planning and marketing. This means that very often, luxury items are already in use by someone else: the retailer may simply choose not to sell to an individual, because doing so would mean a loss to the retailer. Very rarely will a luxury item be intentionally scarce, with the aim being to drive the price up to its inflated value (a process sometimes known as ‘cashing in’)