new article on watch industry

[freddyfred89]

Hey Fam -

I'm writing a series of articles on the economics of the watch industry. I have been doing research and teaching economics for more than 20 years, I hold a PhD in the field. My most recent article focuses on the unique nature of prices in the watch industry, it is available at:

https://www.horolonomics.com/2019/09...of-demand.html

All of the articles are available at Horolonomics.com. If you have a chance to read and have any comments or suggestions I'd love to hear them! Thank you!

[watchucallit]

I want to ask you a question regarding your article on Scarcity... You discuss the economics behind rationing and it makes sense. I have two questions.

https://www.horolonomics.com/2019/07...-horology.html

1) How well do companies like Rolex and Patek have the ability to accurately model where to set or limit their supply rationing compared to classic supply = demand in order to maximize their profitability? It seems like some of the economic benefits of rationing would be difficult to model (e.g. getting someone to purchase a looser model to get a rationed piece at the same time or promoting the hype around the brand resulting in higher demand). Moreover, to me it seems like rationing is a bit too extreme (e.g. wait times of many years) in some cases and at some point may limit profitability for the manufacturer.

2) Take a company like Lange and Sohn --- make a great luxury product but yet their watches are heavily discounted. Thus, making such a purchase would be unwise to a buyer if holding value is their only concern . Do you think a company like ALS would benefit from rationing? or is general demand for their watches not high enough for this to work. Or do they need better marketing folks?

Originally Posted by freddyfred89

Hey Fam -

I'm writing a series of articles on the economics of the watch industry. I have been doing research and teaching economics for more than 20 years, I hold a PhD in the field. My most recent article focuses on the unique nature of prices in the watch industry, it is available at:

https://www.horolonomics.com/2019/09...of-demand.html

All of the articles are available at Horolonomics.com. If you have a chance to read and have any comments or suggestions I'd love to hear them! Thank you!

[Mad Hatter]

very interesting. Thanks!

[freddyfred89]

Originally Posted by watchucallit

I want to ask you a question regarding your article on Scarcity... You discuss the economics behind rationing and it makes sense. I have two questions.

https://www.horolonomics.com/2019/07...-horology.html

1) How well do companies like Rolex and Patek have the ability to accurately model where to set or limit their supply rationing compared to classic supply = demand in order to maximize their profitability? It seems like some of the economic benefits of rationing would be difficult to model (e.g. getting someone to purchase a looser model to get a rationed piece at the same time or promoting the hype around the brand resulting in higher demand). Moreover, to me it seems like rationing is a bit too extreme (e.g. wait times of many years) in some cases and at some point may limit profitability for the manufacturer.

2) Take a company like Lange and Sohn --- make a great luxury product but yet their watches are heavily discounted. Thus, making such a purchase would be unwise to a buyer if holding value is their only concern . Do you think a company like ALS would benefit from rationing? or is general demand for their watches not high enough for this to work. Or do they need better marketing folks?

Hi watchucallit, I am really sorry for the delay in responding, just been super busy recently. Thank you for reading and asking!!

I don't have enough information about the inside of these orgs to really offer specific details about their forecasting effectiveness. We do know that they have made mistakes by producing too much (Omega and others) and that they've attempted to buy back and destroy extra instead of letting it leak onto the grey market and sell at a discount. I talk about why this is the case in my article on Veblen effects (avoiding pooling equilibrium).

I think they have asymmetrical costs, ie producing too much is WAY worse than not producing enough. If you produce low then your product seems exclusive, prices are higher on the secondary market, rationing happens, ADs have lists that they can use to offload junk designs, etc. If you produce too high your product prices fall (so early buyers get ticked because they pay more than what happens on the grey market), your product isn't exclusive, ADs are mad because product sits on shelves, etc. So limited editions and under producing is the way to go (although it does screw up your economies of scale but maybe you can deal with that with high prices).

Lange is a really interesting question because it is German and I think that is a slightly different ball game. I'm not familiar with people struggling to find their stuff but perhaps it does happen. I do think they're more of a boutique time situation, their production is pretty small compared to someone like AP and they're pretty new on the scene (in this incarnation)

[freddyfred89]

Originally Posted by Mad Hatter

very interesting. Thanks!

Thank you for reading :)