I‘m just sobbing over year old limited vinyl only releases going for x times the original price second hand. Wouldn‘t the artist themself make more money if i could still buy it digitally? Same thing for sneakers etc
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1. They can set a price higher than reasonable if there were more available.
2. They avoid underselling. If you have to pay to make something, it’s easier to guess how many you know you can sell than to guess how many you could possibly sell. So you only make as much as you know you can sell to avoid wasting money on making too many and then failing to sell.
The first is a pretty despicable practice..the second is somewhat respectable depending on the nature of the product. There simpler aren’t that many vinyl listeners compared to digital for example. The cost of producing and distributing a physical product versus a digital one is extremely high as well.
Note there is another position to take…why are digital copies of somethings so expensive compared to the physical ones (video games for example)? In reality, they should be much cheaper! You can see some companies taking this to heart and raking it in (Steam sales) while others don’t yet still survive and even thrive (many console retailers).
People suck.
Firstly, it generates hype and prestige. If there are only a few of a product then those that care about it will pay a lot just to be the only person on their block to have it.
Speaking more broadly, there are very few products that have universal appeal like smartphones where everyone has to have one. Sellers know this and so instead of trying to gain as much market share as possible, they carve out a niche for themselves in hopes to dominate that niche. You can still generate a lot of sales by making yourself more exclusive to justify sky-high prices. That’s basically how the entire luxury industry works.
In addition to what others said
The goal of these items is that they are limited release– being limited release makes them exclusive. Exclusivity has benefits to the buyer. Many items may not be popular enough to sell, or people may not need to buy it “now”, but making them exclusive and limited defines a value for the item so that it encourages specific consumer behavior — which is buy it now or you may never get it, ever, and when you do, you are in an exclusive club. It creates demand when there may not be demand, due to the limited quantity.
It only makes sense when scarcity itself has a value for some customers
Let’s say there’s 100 people.
40 of them don’t care for your product and would only take it for free
30 like it and would buy it for 10$
20 love it and would buy it for 25$
10 fanatics would pay up to 100$ to get it
Your choice :
Produce 10 @ 100$ : 1000$ sales
Produce 30 @ 25$ : 750$ sales
Produce 60 @ 10$ : 600$ sales
Note that making different editions / price tiers is the goal so you can get everyone at their max price (1000 + 500 + 300 : 1800 $ total market)
Consider: suppose you are the only person who can supply some item that people want to buy. If you make fewer available, you will sell fewer, but the price will go up. If the price goes up enough, you’ll make more profit even selling fewer items. If the price does not go up enough, you will make more profit per item, but less total profit.
As a monopoly supplier, you will choose to sell just enough to maximize your profit. If you do the math, it turns out this is always a smaller supply than would come from an open market where many people could supply the item in question.
Making a product takes work and resources. If it costs 1dollar of time and materials to make a widget, you can make 1000 and sell them for $2 each, and take home $1000. Or you can make 500, sell them for $4 each, and go home with $1500.
ROI vs total earnings
Corporations(and most other business models) exist to return the greatest possible return for it’s investors. For every $1 invested a company wants the maximum amount of return. This sometimes results in counter intuitive business decisions. If you can invest $100 and earn $160 then you have total earnings of $60 or $.60 for every dollar, or you can invest $200 and earn $280 giving you earnings of 80 but only $.40 for every dollar.
Nah, y’all are missing an important part of this: what happens after the limited edition sells out?
You *start* by selling the elite limited edition, only 1000 made, get yours now for just $1,000 each! And the people with desire and money snap those up since they’re the only option. And you tell them it’s worth it, because it’s a collectible! That $1,000 is an *investment*!
But then, once those sell out, you sell the premium gold edition, only 100,000 made, at just $100 each! And people with less money snap those up since it’s so much cheaper than the elite edition. And some of the elite edition people buy this one too, because there’s gold foil on the box.
*Then*, once those sell out, you sell the so-called “platinum” edition, which you flood the stores with at $10 each. And maybe the elite edition owners get annoyed that you undercut their investment, but oh no no, this is a totally different product, this one’s got silver holograms on the cover. And some of the Elite and Gold edition buyers pick up a copy of this one too, because hey, the holograms are cool and it’s only $10.
The point of artificial scarcity isn’t to limit your sales. The point is to extract maximum profit from the most devoted fans, before going on to sell your product to the mass market. You don’t want to give a super-fan the option to pay $10 until you’ve collected their $1000.
let’s say you have 100 vinyl records and you want to make a profit of 1000€. Let’s say that there are also 100 buyers who want 1 vinyl each and are willing to pay you whatever it takes.
Great, you think. You cut down supply by half (50) and therefore tightening the market to force everyone to pay double the price.
You wait a few months until you release the next 50 records and get double the price again.
You made 2000€ instead of 1000€ because you decided to manipulate the market.
You can play this game with 1/4 each, 1/8, etc. of the supply and profit even more absurd amounts of money
This only works if:
a) The item is scarce.
b) you don’t need the profit right away.
c) you (or a select few) controll the market.
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