Comments on: When demand slopes upwards

By: SelenesMom

SelenesMom — Mon, 09 Nov 2009 17:06:24 +0000

Way back when, we were taught that this phenomenon is called “reverse demand elasticity” and applies to many luxury goods — in particular, when a consumer doesn’t have much to go on besides the price, s/he will use a price signal as an indicator of quality.

By: Felix Salmon

Felix Salmon — Mon, 09 Nov 2009 16:47:10 +0000

John, where did I write that?

By: a

Mon, 09 Nov 2009 15:12:16 +0000

It’s not conspicuous consumption; it’s a fear of what is in that two-dollar bottle of wine. The same instinct might cause you to steer clear of a 45-cent hamburger: if the price is that low, it’s bound to be wretched. At a slightly higher price, you can at least hope for a better quality good.

By: Jon H

Jon H — Mon, 09 Nov 2009 14:39:11 +0000

I have a hunch that significant medical procedures will behave the same way. If it’s more expensive, it must be better/more advanced/more effective/better surgeons. If it’s cheaper, the surgeon must be a hack with a degree from a Caribbean diploma mill, or be using worn-out equipment, or outdated procedures, or whatever.

That’s why I don’t think the answer to controlling healthcare costs is simply to expose patients to the prices and let them choose.

By: John Brewster

John Brewster — Mon, 09 Nov 2009 14:15:02 +0000

Let the record show that you, Felix, were a strong signatory in 2009 to the false belief that the US “cannot default on its debt because its debt is in dollars and it can simply print dollars.”

Now that 6 months have passed since you more habitually spouted this internally flawed argument, do you finally see the problem with this view?

Let me help you out: the US started to willfully default on its debt when the FED made the decision to monetize debt, thus functionally monetizing a portion of the operating budget. The result was fated to be recorded eventually in the currency, and in gold, and you are seeing that now.

By: Atrios

Atrios — Mon, 09 Nov 2009 13:41:48 +0000

either they’re Veblen goods, or quality is uncertain and price is seen as strong enough signal of quality. or some combination.

By: Fred Engels

Fred Engels — Mon, 09 Nov 2009 12:46:12 +0000

So what you call the fact that when prices for financial assets go up demand increases?

By: Casper

Casper — Mon, 09 Nov 2009 12:16:18 +0000

Your celebrity status is making your head swim, Salmon.

Very funny comments that made my jobless snobless day.

For the maths boffins, from what I recall:- these are supply and demand curve intercepts, not straight lines, and these shift around, quite correct. One could almost call it the ‘Efficiency Frontier’ of Investment Theory 101. Water to wine

By: Neil D

Neil D — Mon, 09 Nov 2009 09:55:03 +0000

It is conspicuous consumption to the insecure buyer.

By: Neil D

Neil D — Mon, 09 Nov 2009 09:51:55 +0000

Conspicuous consumption. The higher price demonstrates the wealth and status of the consumer. It’s just like jewelry.

By: Sprizouse

Sprizouse — Mon, 09 Nov 2009 05:00:47 +0000

I’m not sure there’s a name for it other than, perhaps the “snob effect”. But this kind of thing doesn’t fit very neatly into any macroeconomic model (just like behavioral finance doesn’t square with the Efficient Market Hypothesis). This is a marketing-driven creation, pure and simple — and the biggest and best example I can think of is how Sidney Frank marketed Grey Goose when he launched it (there’s a really good article from NY Mag a few years back about Frank and the power of marketing).

By: wcw

wcw — Mon, 09 Nov 2009 04:57:56 +0000

I am no microeconomist, but I always assumed it was a given that uninformed consumers (and the seller usually knows more than the buyer in the $2-6 wine market) use price as a proxy for quality. Pretty easy for sales of random-label wine Z to rise as putative price X increase along that range.

Me, I used to buy a lot of $2-5 bottles at the Grocery Outlet. You pour out or cook with most, and buy cases of the finds. If that is everyone’s plan, sales will not increase, but then I always said that if everyone acted like I do capitalism would have collapsed long ago.

By: dWj

dWj — Mon, 09 Nov 2009 01:59:24 +0000

capitalcalls: calling something a Giffen good implies a bit of a different mechanism than what’s in play here.

I read of something similar to this happening with “rocky mountain oysters” at a particular restaurant; they tried selling them for 50 cents each and nobody wanted them, but they raised the price to $3 or so and limited them to two per customer and could portray them as a delicacy, and they sold much better. I don’t have a good source on this, though.

By: capitalcalls

capitalcalls — Mon, 09 Nov 2009 01:35:16 +0000

What you have here is really two goods, each with their own demand curves. The way I look at this is that there’s a supply and demand curve for cheap wines and another set for expensive wines. Both of these should be downward sloping.

In economics, Giffen goods are those where demand increases as prices increase. http://en.wikipedia.org/wiki/Giffen_good s

By: datanerd

datanerd — Mon, 09 Nov 2009 01:09:20 +0000

It’s the perceived quality of the goods. For example, Mercedes-Benz let their quality control go to hell back in the early ought-oughts, because of the Chrysler merger. People were still willing to pay the extra for a Benz because of the perceived quality, even though the quality wasn’t there. Or perhaps a better car example was the Japanese versus the American cars in the sixties and seventies. Now we’re seeing that wine can be both reasonably good quality and cheaper. People’s consumption functions do not change as quickly as would be expected for a ‘rational’ consumer.