Conspicuous consumption replaces utility with the signaling of social status.
Imagine a classmate who buys a backpack with a huge logo, even though a simple one does the same job. He doesn't buy the backpack to carry books, but to tell everyone: 'Look how rich I am!' Economists call this 'conspicuous consumption'.
Veblen observes that this behavior is not just an individual weakness, but a social system. When a neighbor buys a car more expensive than yours, you feel pressured to do the same to avoid looking poor. Thus, conspicuous spending creates an arms race among people. Each increase in one person's consumption forces others to keep up.
Why it matters This idea explains why ads and fashion influence our spending, even in times of crisis.