> Yet no other market seems to operate by supplying only luxury units and depending on trickle down. Why are there Corollas, instead of just more Lexuses? Beca

> Yet no other market seems to operate by supplying only luxury units and depending on trickle down. Why are there Corollas, instead of just more Lexuses? Because no other market has fixed unit quotas set by the local government[1]. There's no rule about how many Lexuses and Corollas Toyota is allowed to build. The dirty secret of the Bay Area housing market is that a lot of Lexus buyers have started buying Corollas because there aren't nearly enough Lexuses to go around. They can afford to pay Lexus prices for the Corolla, so they do. But that means Corollas now cost as much as a Lexus. Corolla buyers can't afford that, so they start paying Corolla money for a Yaris. But now Yarises cost as much as Corollas. Yaris buyers can't afford that, so where does that leave them? They either take the bus or walk. Building more Lexuses will stop the Lexus buyers from buying Corollas. Build enough, and you can even make this whole process run in reverse. [1] Actually, there was. The US government threatened Japan with trade sanctions unless Japanese manufacturers agreed to voluntary export limits. So Toyota created the Lexus brand to sell more profitable cars within their alloted quota.