First-ever sighting of a Giffen good

A Giffen good is one for which demand goes down when you lower its price, or for which demand goes up when you increase its price.

Victorian-era British statistician Robert Giffen was the first to characterize this phenomenon, believed by economists to be theoretically possible but never positively identified in real life until a recent paper by Rob Jensen and Nolan Miller, from Harvard University's John F. Kennedy School of Government.

Economist Dani Rodrik featured their work in a July 14, 2007 post in his blog.

Long story short, as summarized in the July 16, 2007 Wall Street Journal: "Wheat and flour fit the bill in central China. When the price of the good falls, the household in effect has become richer, with more income to spend. But rather than buy more rice at the cheaper price, the household might instead choose to spend its extra income on more expensive and previously unattainable items like meat.

"The classic example of a Giffen good is a potato during the Irish potato famine. The Harvard economists say that that the example is probably apocryphal. There is certainly no data to support it. But when they subsidized the prices of rice and wheat flour for five months in China, they found that the subsidy led to reduced consumption of rice or wheat, and its removal to more consumption. Mr. Rodrik says that while this is an exciting find, its scope is limited: Environmentalists, he says, shouldn’t aim to depress consumption of fossil fuels by reducing the price of oil."

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I'm reminded of a phenomenon which I know to have occurred in Japan, to wit: a product is placed on the market but doesn't sell, even though it's aimed at a very high-end market.

Advice is given: double, even triple the price — the Japanese believe something of the highest quality should embody its excellence through premium pricing.

Sales take off.

This would appear to be Giffen behavior but anecdotal as opposed to documented like that described above in China.