6 ms·

Have any serious economists looked into the matter of hugely mis-priced luxury items? There are the mostly-comedic treatments (as by Veblen) but it would inter

Have any serious economists looked into the matter of hugely mis-priced luxury items? There are the mostly-comedic treatments (as by Veblen) but it would interesting to read a serious study. When you have something that costs (maybe) a few hundred to produce, and sell it for $35,000, what is the actual effect on the economy? My guess: Very little. It's basically an idiotic millionaire writing out a check to an intelligent millionaire, with a little token for remembrance. ... Fun fact: The results in Amazon's "Sort by Price: High to Low" are algorithmically identical to its "Sort by appearance: Shitty to Attractive": http://www.amazon.com/s/qid=1248405570/ref=sr_st?keywords=watch&rs=377110011&page=1&bbn=377110011&rh=n%3A377110011%2Cn%3A%21378516011%2Ck%3Awatch&sort=-price http://www.amazon.com/s/qid=1248405570/ref=sr_st?keywords=wa...

anigbrowl 17y ago
I suspect it costs a good bit more than that to produce, though if you begin with the idea to sell for $35,000 you can comfortably budget a tenth of that for manufacture. I think when someone buys such a watch it is not because they really think it is so much better (although a few fools do) as to signal the ability to make such a purchase. Real luxury goods are an entirely separate economy where normal economic considerations are upended in favor of status. Via business, I get copies of a magazine for rich people featuring reviews of such baubles as Versace-styled helicopters.
- jimboyoungblood 17y ago
  A lot of highly specialized manual labor goes into the production of high-end watches, and above $20K they are usually made gold or platinum, so there are higher material costs as well. Like anything else, prices of luxury goods are determined by the market- as long as someone is buying, they are by definition not overpriced. Comments here regarding "idiotic millionaires" and the like reek of class envy.
  - Retric 17y ago
    You don't use much gold in a high end watch as it's heavy and not all that strong. Nobody wants to walk around with a 3 pound watch, and huge diamonds on watches look stupid. So it's all about restricted supply. This watch costs 200k because we are going to make 100 of them. One of the hidden truths about high end watches is they don't keep vary good time. And they don't have high resale value most of the time.
    - pchristensen 17y ago
      Don't forget how much it costs to sell the watch - that highly trained staff at the Beverly Hills boutique doesn't come cheap either. This of a luxury version of a car dealership.
    - zck 17y ago
      High end watches don't keep very good time because they're not electronic watches -- they have mechanical movements.
    - yalurker 17y ago
      Resale value of luxury items seems very odd to me. If the original purpose of buying it was that it was intentionally luxurious and decadent, where is the market for buying it second hand? Obviously other people won't know you bought it used, but it seems like the notions of luxury and resale are inherently opposed.
      - anigbrowl 17y ago
        There's a trickle down market like everything else. A used-but-not-tatty luxury item is still luxurious, and while it won't impress the already-wealthy it will carry cachet with the upwardly-mobile or the general public. Thus, you might be better off buying a used Rolls-Royce or Bentley than a new Lexus. I was surprised to learn from Mrs Browl that there are rental clubs for luxury handbags - women who want to make a fashion statement can check out a different designer accessory for different events. This made no sense to me until I considered it from a social engineering standpoint.
lionhearted 17y ago
I'll comment on this. I came from basically nothing, and now I do pretty well. I've seen a lot of luxury, that people from my background don't usually see. I used to think it was just capricious and wasteful. A few years ago, one of my mentors took me on a ski trip with him and friends - I was the only person there under 30 and who wasn't a millionaire. The guys are wearing Rolexes, Cartier, Patek Philippe, nice clothing, etc. One owns a helicopter, many own boats, most own multiple cars and properties. Money made in different fields - construction, commodities, finance. There was a risk assessor/professional handicapper, my mentor was running one of the most profitable architectural firms in Dubai. Stupid money at the table I was dining at. Another: One of my closest friends was a self made millionaire at 24. He's 29 or 30 this year. Lives in a 3 million dollar beautiful modern house with all the nicest conveniences. When his earned income dipped from $800k/year to $200k/year a few years ago, he had to scramble to replace it. He got into a couple not-glamorous businesses, undercosted competitors, paid suppliers huge signing bonuses ahead of time to get great rates and some exclusive locations, and so on. His gym membership is over $200/month for a luxury place that's not much nicer than my $40/month gym. He spends over $1000 a year on orange juice. But I had a realization one day - first, these fellas are spending a smaller percentage of their money on luxury goods, consumption, etc, that then average person does. Someone who makes $4k/month and eats out a $20 meal now and then is spending a heck of a lot more than someone who makes $200k/month (as my mentor was) and eats out at $200 meals every other night. The extra consumption for many of these gents fuels extra production. When my work started to fall apart during the banking crash, I had a year of savings in the bank, and I'm quite frugal. I didn't hurry to get into anything - but if I'd had super high expenses, I would've, and I'm capable. My lower consumption meant I wasn't forced to produce right away. Beyond that - nicer things actually are much higher quality. I try to buy clothes that are meant to retail for a lot. I look to go to Saks Fifth Avenue during Summer Sale or Winter Sale for the 80% off, or go to fashion sample sales. I tell you, $300 jeans look better, fit better, and hold up better than any $40 jeans. (And I buy my $300 jeans for $60-$120 on sale anyways). Well made watches last forever. Good scuba gear and skis last forever. You get diminishing returns after a while, big time, but a 2010 Skyline or a Cayenne does drive a lot nicer than my 1995 J30. I'm Captain Frugal over here. I only spend a lot on quality tools, experiences, and gifts for other people. But I understand why wealthy people do. You get better quality, it pushes you to produce more. It's also a signaling thing. I have an Andrew Marc leather jacket I got for $300 that normally retails at like $1200. I remember going in to talk to a VP of Citizen's Bank, the head of that particular branch. I wanted to get a loan, and he said, "Hey, that's an Andrew Marc jacket." I said, "That's right, yeah." I look more successful. I always wear that jacket when I go to a bank. Finally, some expensive things mean you know everyone in the room will be of fairly high caliber. I don't like haughty places so much, but actually, the really exclusive nightclubs have much friendlier people in them to strangers than run of the mill less restricted places. People know that by virtue of being in, you're probably alright. Eh, I'm rambling. Long story short, I used to think the way you did. But there's some legit reasons to spend lavishly on certain things, and you might actually wind up closer to your goals if you do. Certainly if you produce at a high level, intelligently increasing your consumption can at times make you wealthier than being ultra-frugal and hoarding. I'm only recently learning this lesson.
tjmc 17y ago
The 35K might be justified if it was a rare collectible in which case it's an investment decision rather than an ostentatious purchase. I own a 1967 Breitling Navitimer that cost less than a tenth of that amount, but was still a lot (for me). It's appreciated in value and is beautifully engineered so to me it was worth every cent.
- tptacek 17y ago
  I own an IWC that also doesn't cost anything resembling 35k --- I understand why people value them, and appreciate the engineering, but it's still not one of my prouder purchases (although it's far --- far --- FAR --- from my least proud purchase.)
  - clistctrl 17y ago
    What is your least proudest purchase? personally mine would be the time I bought speakers from a very charismatic fellow from a van in a parking lot when I was 18.
tptacek 17y ago
An IWC or Patek doesn't cost a few hundred dollars to produce, although I'm sure the real spread is horrific. Most luxury watches don't cost $35,000, either --- mid-4-figures is a more realistic estimate for the "BMW 3 Series" tier of watches.
- jimboyoungblood 17y ago
  I saw a article a few months ago about how the $5000 watch market is toast, and how the manufacturers' new strategy was to focus on the ultra high end ($100K+) market. That is, people have stopped buying 3 series, so lets make up the difference by selling more Bugattis. Great idea guys.
  - sethg 17y ago
    I am reminded of Joel Spolsky's observation (http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...) that there's no software priced between about $1,000 and $75,000, because anything that costs above $1,000 has to be approved by multiple layers of corporate bureaucracy, which means you need a salesman to schmooze potential customers into giving up that loot, and it's going to cost you $50,000 just to make each sale. (Joel wrote that five years ago, so I assume the numbers have shifted around a little, and he doesn't really talk about SAAS pricing models. But the general idea is sound.)
    - run4yourlives 17y ago
      I can assure you that what Joel is talking about is not only correct, it applies to pretty much every industry.
muon 17y ago
A short course in behavioral economics (Richard Thaler, Sendhil Mullainathan, Daniel Kahneman) http://www.edge.org/documents/archive/edge263.html http://www.edge.org/documents/archive/edge263.html
kitcar 17y ago
I believe the economic term you are looking for is "ostentatious goods" An ostentatious good: is a good where an increase in price leads to an increase in demand because people believe it is now better.

anigbrowl 17y ago

I suspect it costs a good bit more than that to produce, though if you begin with the idea to sell for $35,000 you can comfortably budget a tenth of that for manufacture. I think when someone buys such a watch it is not because they really think it is so much better (although a few fools do) as to signal the ability to make such a purchase. Real luxury goods are an entirely separate economy where normal economic considerations are upended in favor of status. Via business, I get copies of a magazine for rich people featuring reviews of such baubles as Versace-styled helicopters.

jimboyoungblood 17y ago
A lot of highly specialized manual labor goes into the production of high-end watches, and above $20K they are usually made gold or platinum, so there are higher material costs as well. Like anything else, prices of luxury goods are determined by the market- as long as someone is buying, they are by definition not overpriced. Comments here regarding "idiotic millionaires" and the like reek of class envy.
- Retric 17y ago
  You don't use much gold in a high end watch as it's heavy and not all that strong. Nobody wants to walk around with a 3 pound watch, and huge diamonds on watches look stupid. So it's all about restricted supply. This watch costs 200k because we are going to make 100 of them. One of the hidden truths about high end watches is they don't keep vary good time. And they don't have high resale value most of the time.
  - pchristensen 17y ago
    Don't forget how much it costs to sell the watch - that highly trained staff at the Beverly Hills boutique doesn't come cheap either. This of a luxury version of a car dealership.
  - zck 17y ago
    High end watches don't keep very good time because they're not electronic watches -- they have mechanical movements.
  - yalurker 17y ago
    Resale value of luxury items seems very odd to me. If the original purpose of buying it was that it was intentionally luxurious and decadent, where is the market for buying it second hand? Obviously other people won't know you bought it used, but it seems like the notions of luxury and resale are inherently opposed.
    - anigbrowl 17y ago
      There's a trickle down market like everything else. A used-but-not-tatty luxury item is still luxurious, and while it won't impress the already-wealthy it will carry cachet with the upwardly-mobile or the general public. Thus, you might be better off buying a used Rolls-Royce or Bentley than a new Lexus. I was surprised to learn from Mrs Browl that there are rental clubs for luxury handbags - women who want to make a fashion statement can check out a different designer accessory for different events. This made no sense to me until I considered it from a social engineering standpoint.

lionhearted 17y ago

I'll comment on this. I came from basically nothing, and now I do pretty well. I've seen a lot of luxury, that people from my background don't usually see. I used to think it was just capricious and wasteful. A few years ago, one of my mentors took me on a ski trip with him and friends - I was the only person there under 30 and who wasn't a millionaire. The guys are wearing Rolexes, Cartier, Patek Philippe, nice clothing, etc. One owns a helicopter, many own boats, most own multiple cars and properties. Money made in different fields - construction, commodities, finance. There was a risk assessor/professional handicapper, my mentor was running one of the most profitable architectural firms in Dubai. Stupid money at the table I was dining at. Another: One of my closest friends was a self made millionaire at 24. He's 29 or 30 this year. Lives in a 3 million dollar beautiful modern house with all the nicest conveniences. When his earned income dipped from $800k/year to $200k/year a few years ago, he had to scramble to replace it. He got into a couple not-glamorous businesses, undercosted competitors, paid suppliers huge signing bonuses ahead of time to get great rates and some exclusive locations, and so on. His gym membership is over $200/month for a luxury place that's not much nicer than my $40/month gym. He spends over $1000 a year on orange juice. But I had a realization one day - first, these fellas are spending a smaller percentage of their money on luxury goods, consumption, etc, that then average person does. Someone who makes $4k/month and eats out a $20 meal now and then is spending a heck of a lot more than someone who makes $200k/month (as my mentor was) and eats out at $200 meals every other night. The extra consumption for many of these gents fuels extra production. When my work started to fall apart during the banking crash, I had a year of savings in the bank, and I'm quite frugal. I didn't hurry to get into anything - but if I'd had super high expenses, I would've, and I'm capable. My lower consumption meant I wasn't forced to produce right away. Beyond that - nicer things actually are much higher quality. I try to buy clothes that are meant to retail for a lot. I look to go to Saks Fifth Avenue during Summer Sale or Winter Sale for the 80% off, or go to fashion sample sales. I tell you, $300 jeans look better, fit better, and hold up better than any $40 jeans. (And I buy my $300 jeans for $60-$120 on sale anyways). Well made watches last forever. Good scuba gear and skis last forever. You get diminishing returns after a while, big time, but a 2010 Skyline or a Cayenne does drive a lot nicer than my 1995 J30. I'm Captain Frugal over here. I only spend a lot on quality tools, experiences, and gifts for other people. But I understand why wealthy people do. You get better quality, it pushes you to produce more. It's also a signaling thing. I have an Andrew Marc leather jacket I got for $300 that normally retails at like $1200. I remember going in to talk to a VP of Citizen's Bank, the head of that particular branch. I wanted to get a loan, and he said, "Hey, that's an Andrew Marc jacket." I said, "That's right, yeah." I look more successful. I always wear that jacket when I go to a bank. Finally, some expensive things mean you know everyone in the room will be of fairly high caliber. I don't like haughty places so much, but actually, the really exclusive nightclubs have much friendlier people in them to strangers than run of the mill less restricted places. People know that by virtue of being in, you're probably alright. Eh, I'm rambling. Long story short, I used to think the way you did. But there's some legit reasons to spend lavishly on certain things, and you might actually wind up closer to your goals if you do. Certainly if you produce at a high level, intelligently increasing your consumption can at times make you wealthier than being ultra-frugal and hoarding. I'm only recently learning this lesson.

tjmc 17y ago

The 35K might be justified if it was a rare collectible in which case it's an investment decision rather than an ostentatious purchase. I own a 1967 Breitling Navitimer that cost less than a tenth of that amount, but was still a lot (for me). It's appreciated in value and is beautifully engineered so to me it was worth every cent.

tptacek 17y ago
I own an IWC that also doesn't cost anything resembling 35k --- I understand why people value them, and appreciate the engineering, but it's still not one of my prouder purchases (although it's far --- far --- FAR --- from my least proud purchase.)
- clistctrl 17y ago
  What is your least proudest purchase? personally mine would be the time I bought speakers from a very charismatic fellow from a van in a parking lot when I was 18.

tptacek 17y ago

An IWC or Patek doesn't cost a few hundred dollars to produce, although I'm sure the real spread is horrific. Most luxury watches don't cost $35,000, either --- mid-4-figures is a more realistic estimate for the "BMW 3 Series" tier of watches.

jimboyoungblood 17y ago
I saw a article a few months ago about how the $5000 watch market is toast, and how the manufacturers' new strategy was to focus on the ultra high end ($100K+) market. That is, people have stopped buying 3 series, so lets make up the difference by selling more Bugattis. Great idea guys.
- sethg 17y ago
  I am reminded of Joel Spolsky's observation (http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...) that there's no software priced between about $1,000 and $75,000, because anything that costs above $1,000 has to be approved by multiple layers of corporate bureaucracy, which means you need a salesman to schmooze potential customers into giving up that loot, and it's going to cost you $50,000 just to make each sale. (Joel wrote that five years ago, so I assume the numbers have shifted around a little, and he doesn't really talk about SAAS pricing models. But the general idea is sound.)
  - run4yourlives 17y ago
    I can assure you that what Joel is talking about is not only correct, it applies to pretty much every industry.

muon 17y ago

A short course in behavioral economics (Richard Thaler, Sendhil Mullainathan, Daniel Kahneman) http://www.edge.org/documents/archive/edge263.html http://www.edge.org/documents/archive/edge263.html

kitcar 17y ago

I believe the economic term you are looking for is "ostentatious goods" An ostentatious good: is a good where an increase in price leads to an increase in demand because people believe it is now better.