3 ms·

Just a reminder about apenwarr's fantastic blog post about Bay Area housing price simulation: https://apenwarr.ca/log/20180918 https://apenwarr.ca/log/20180918

• nostrademons 8y ago
  The same applies to many inelastic markets with bimodal (or otherwise "lumpy") distributions. When the supply falls below demand from the highest tiers only, there's a sudden sharp spike in price, as all the lower tiers are priced out of the market entirely. The market-clearing price becomes what the higher-paying buyers are willing & able to pay, because there's not enough product to service the lower-paying mass market anyway and so no incentive to price affordably for them. You see this most dramatically with startups. A single engineer might go for $200K/year. If that single engineer founds a startup that develops a commanding lead in a market that suddenly becomes interesting to a big company, they can fetch billions. Why? Because now instead of there being one Yahoo and 30,000 Jan Koums, there is one WhatsApp and some very deep-pocketed Googles/Facebooks/Yahoos. It applies to other markets like gasoline, therapists, health care, etc. too. When demand exceeds supply, all the "excess" demand simply has to go without, and the market-clearing price rises to the maximum that the marginal customer can pay.