It used to be that every kid in the block had several pairs; nowadays me and my friends can barely afford two pairs. The technology today allows for a much higher supply, as well as an increase in demand due to increase in population (especially in cities). Not to talk about recycling technology…
The same question goes to Coke and its past awesome gifts/campaigns.
In: Economics
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I mean, they cost $55 a pair so not exactly a premium price for athletic shoes…
But there are aspects of both supply and demand that could lead to price increases, including them becoming more of a fashion trend where people are willing to pay more so they raise prices. And there are also now newer versions with more technology that do costs more. And then there are issues of manufacturing costs, from increased labor costs in 3rd world countries to Trump’s tariffs adding costs to importing goods.
I had to google what a converse all star is. A shoe, obviously. The prices in germany are around 100€. Eventhough I would never, ever, pay 100€ for shoes it is a normal price for a branded shoe and thanks to people who are paying these amounts of money for bangalorian sweatshop wear, these price will go up.
A perfectly competitive market ensures that a good will be sold for the price that it costs to produce. If the cost of production declines, so should the end price paid by consumers. Assuming you’re right about both the recent trajectory of shoe production technology and of the price of Converse shoes, they do go against that simple observation.
I would argue that only the market for athletic shoes *in general* is competitive, or close to it. You can absolutely buy no-brand shoes for close to what they cost to produce. However, once you start thinking about the price for a very specific good, like Converse shoes, things get more complicated. Converse is the only company that can make Converse shoes. They are a monopolist in that very specific market. Monopolists tend to restrict quantity and increase prices, as this is the best way to make a profit. That appears to be what Converse is doing.
This doesn’t matter if there are close substitutes for Converse shoes available. Converse isn’t a monopolist in Converse-esque shoes. However, Converse (like Coke) has something other companies desperately want, which is a sense among the public that their brand is unique and anyone making similar items is just a copycat. All the ads and the product placement and the famous people wearing the shoes are aimed at achieving that. This campaign was carried out between the time you remember when they were cheap and now, hence the increase in price.
Supply and demand set prices.
You are right, demand is up so there’s two ways a company can address that. They could also increase supply and maintain the price level, this means they would sell more shoes.
Or the company could increase price, and keep production the same. Lets look at these two examples.
A shoe costs $10 to manufacture, and the old selling price was $25. $15 profit per pair. At the beginning of this example they are selling 1,000 pairs a year for a total profit of $15,000 per year.
Now these shoes get super popular. The sales people do a lot of forecasts and they figure that at $25 per pair we can actually sell 10,000 pairs per year. Alternatively we could increase the price to $100 per pair and we would only sell 1,000 per year.
So in scenario one, we sell 10,000 pairs at $15 profit per pair for a total profit of $150,000. In scenario two we only sell 1,000 pairs but we sell them for $200 each. After removing the cost to make the shoes profit is now $190 per pair. We still only sell 1,000 pairs and total profit for the company is now $190,000.
So given those two choices, we would chose to raise our price and sell the 1,000 shoes for $200 each since that makes us the most overall profit.
The cost of Allstars going up is largely based on Nike buying them and turning them from the Converse All Star everyday shoe that Converse made them into a fashion item. Nike spends a lot of money on product placement.
Further Nike set the price floor, through minimum advertised price agreements with merchants so the higher price has everything to do with the manufactured demand by Nike through promotional placements and the one source of supply for them.
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