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Culture War Roundup for the week of November 14, 2022

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Why not dynamically price every luxury good in high demand?

Since we've been covering bourbon in multiple threads this week, let's take bourbon as a toy case here. Buffalo Trace Distillery makes a number of limited availability bourbons that are allocated to liquor stores by distributors. The MSRPs on these products are much, much lower than the going rates on secondary markets, in some cases you're looking at 1000% mark-ups and many of them are 200-300% markups. I am aware of at least three reasons for doing this:

  • Intentionally driving scarcity - by keeping these products at low prices, they assuredly sell out instantly and develop a cult-like devotion among bourbon fans. This drives hype around the brand more generally, presumably increasing the sale of other products.

  • Allocation based on liquor store purchases - by distributing only a few bottles of the "good stuff" to their best-buying liquor stores, they incentive liquor stores to purchase more of the mid-line and low-end products. One of my local liquor stores does this, secures those great bottles, and then gives out lottery tickets for the pricey ones based on purchases of the more middling ones.

  • Brand reputation more broadly - many fans have a high opinion of companies that sell cheap on these rather than capitalizing on the market. I think they're wrong, for exactly the reasons you're getting at, but this is a very uncommon opinion - people get mad at "price gouging" even for completely frivolous products selling for market rates.

There are probably more too! But this is one good example of how a company that has a few premium products and many non-premium products judges it advantageous to keep prices low on the premium products. Marketing and brand value beat getting a few bucks more out of a small number of bottles.

Venues have an incentive to sell at below market value rates to ensure they sell out because (1) the cost of the venue is the same whether you sell out or not and (2) once they get people there more high margin dollars will be spent.

So when ever you sell below market rates you need to figure out a different method to allocate scarce resources. Queuing is one of them. Scalpers are willing to wait in line, and then try to sell to people who value their time more than the mark up they pay for the ticket. Scalper also takes a risk the value of the ticket will decrease.

These are all decent reasons why a company might decide to underprice their premium products but none of them are reasons consumers have any right to complain if a company chooses not to do this.

I think the anger is pointed more at the scalpers and percieved "bait and switch" factor, IE if the sticker says X I should be able to buy it for X.

If supply at that price is much greater than demand there will necessarily be shortages. It's not like the scalpers are the reason for that.

The lottery system isn't the only one used, from what I've heard it's very much more of a be friends with the liquor store owners kind of thing than something so egalitarian.