What Is Luxury?

In economics, a luxury item is an item that is bought by households with an income that exceeds a minimum level of income and is usually bought with the anticipation that it will bring a higher income in the future. Luxury goods tend to be overpriced relative to similar goods in other categories, but they are typically overpriced because of demand. For example, an expensive couch would not be expected to sell in all cases, but it does if there is enough demand for it.


Luxury goods vary widely by definition. In economics, a luxury good refers to any good or service that is unusually expensive for the average person to afford, where the cost is normally associated with the social status of the owner or recipient. Economists usually term luxury goods as those that are perceived to be rare or exotic, rather than merely unique, and they include luxury brands and works of art. In many ways, luxury brands and exclusive art galleries seem to stem from a desire to differentiate one from the other. In recent years, however, more mainstream consumers have come to expect and appreciate luxury brands, and their high cost has fallen somewhat outside of the domain of the elite.

Luxury brands are also different in that they tend to be made by a privately held company, making them inherently unstable and uncertain. If a luxury brand is truly popular, its price can rise over time to the point where it becomes unprofitable for the private company to survive and the luxury brand may be sold at a huge loss to a new owner. A luxury brand with little or no marketability is not worth investing money in, especially for an investor who expects returns of less than 20% per year. Private companies usually take years to mature and reach a profit level that makes it practical for them to lose value in the long run when a luxury item loses value as a result of over-valuation.