Supply and Demand...

[gmando]

OK Econ Allstars-
I've got a question for you... take a small mandolin company(say Eastman since they seem to be so hot right now), who doesnt necessarily have the capability to produce as much as a larger company, but still(somehow) charges pretty low prices for their instruments. If the demand for this company's product shoots through the roof, do you think the price will raise too? Of course one of the main appeals for this company is the low price, but if they are selling like crazy, won't the company have incentive to raise prices? Let me know what you think!

[Tim]

The missing factor is what will happen to demand if the price goes up. #Its been a while since I've studied economics but the concept is elasticity of demand. #Some products the demand doesn't change much when the price changes - the manufactures of those products can raise the price and make more money. #Some product the demand is influenced a lot by price and you can actually make more money by lowering the price and selling more at a lower unit profit.

I would guess that if Eastman raises their prices, the demand will drop.

[atetone]

First of all I know nothing about the theories of economics.
I agree with Tim though that in Eastmans case the big flurry on demand is the price, especially on the lower end models.
They seem to be really good deals for the product that you are getting.
The thing that I am waiting to see is how many of the high priced models are going to sell.
When you start talking about $2800 models I think sales are going to stall. For that kind of money there are a lot more options to consider.
I am attracted to the 600 series due to the price for what you are getting. Any of the higher priced models start creeping up to the point that other brands start competing for attention.
I am keeping my eye on Eastman, waiting #for them to work some of the bugs out and to offer radiused boards, but I wont be slapping down $2800 for any Eastman. In my opinion that would be bad personal economics.

[Keith Erickson]

I have to be honest with you, I don't know much about Eastmans other than the good reviews that I've been reading. However gmando, your question does nudge my memory of Macro and Micro Economics.

Yes the price could go up if the demand goes up. The beauty of the free market is that anything goes. If Eastman sees profits for as far as the eye can see by keeping prices low and selling a great product, then they will live or die by that decision.

Remember the Model T? I was a very young man in those days ...anyway the model Henry Ford used was to manufacture a quality car for the masses and he made a ton of money doing it.

However times change and Ford ahd to change as well. Will Eastman have to change down the road? Probably? Who knows? But they are living in the present and this model is working for them.

[sunburst]

My knowledge of economics all comes from introductory college economics, and life experience .

For a small builder, the price is the best way to control back order. Seems to me that if Eastman can't keep up with demand, they can raise the price 'til orders are in line with production.
The other thing they could do would be to keep prices low and increase production. That eventually leads to moving to a bigger place, of expanding the building and increasing the size of the work force, and making training more of a part of the business. Growing pains, you know.
Manufacturers that expand rapidly tend to have more quality control problems.

So, I would expect the price to go up, the quality to go down, or it'll stay pretty much the same. (Talk about covering my bases, huh?)

[s1m0n]

For a small builder, the price is the best way to control back order.

Yes, and if demand exceeds supply to any great extent, and the maker cannot raise either the price or the supply, then the waitlist in effect becomes a lottery--anyone who scores an instrument can immediately flip it at a profit to someone who wants to jump the queue.

That's not good for the builder and isn't really good for the instruments--they end up being bought in speculation rather than with the intention of being played.

[bmac]

That an instrument is popular it does not necessarily suggest that the price will go up. A company usually knows its market and knows how to make money by selling at a given price. Raising the price will drive away some potential customers and the company will make money on greater volume, not less volume.

If a company wants to raise prices they may put out a new model under a different model name, a deluxe model, and they can charge more for it. It can be big mistake to simply raise prices because it often means less volume of sales. A company is successful by giving the customer a good product at a good price. Not a good product at a greater price than last year.

[John Flynn]

There may be some false assumptions here. First off, Eastman is not a small builder. When I met Gordon I believe he said that there about 200 people working at the factory, with about 10 luthiers full-time devoted to mandolins. I think that would make them one of the larger operations. Second, Gordon was very open about the idea that they are still very much in the product development mode. They don't see what they are making now as the final product. They want to keep getting better at making instruments until they are recognized as one of the top makers. They are obviously not there now and whether they get there or not, time will tell. But as long as they are still doing serious development on thier product, their mandos will actually be worth somewhat more each year.

Third, the economic theories so far seem to be talking about mandolins as if they are a commodity and subject to the simple "X" shaped supply and demand curves that one would expect for "pure competition." Mandolins are not a commodity. If they were, Loars would not be going for $125,000. I would interpret the market as a "bilateral oligopoly," where there are relatively few buyers and few sellers at any price point. The forces of supply and demand are complex in such a market have to be mapped through advanced economic techniques. To make matters more complicated, mandolins are almost entirely a descretionary purchase. Since we can all put off mandolin purchases indefinitely and we always have options, even minor changes percieved value versus price can have huge effects on buying behavior. So while the speculation here is fun, I don't think we have enough data to make an economic prediction on mando prices one way or another.

[Dale Ludewig]

I certainly have no degree in economics, nor have I played an Eastman, even though their booth was not far away from mine and Martin Brunkalla's at IBMA last year. #Nice cases though, for the money.

As a small builder, I tend to agree with a lot of what John said. #In fact, I'd bet they'll up production at this point rather than raise price. #Their quality for price on the lower end sounds like it's getting great praise. #Good for them and the people that buy them. #They sound like a great deal. #But if they start to bring models out that compete with excellent small builders, then they've moved into a different market and they don't have Gibson's revered reputation. #And I'm not trying to say anything bad about Gibson's pricing policies (right now).

I also agree, and I think it ties in quite nicely, with the fact that buying a mandolin, especially one of higher value, is certainly discretionary. #No one "needs" one. #You just want one. #So general economic theory here will only operate, IMHO, as Eastman and the market acts. #And Eastman is not the only player, just a big figure on the stage right now, in a particular niche. #Should I quote-" all the world's a stage, and each must play a part". #

Great initial question. #Enjoying the discussion.

[mando_pete]

Also, may I add to Dale's post. I have nothing against Eastman, nor have I played one. But it seems to me that the Eastman rage is "new". This may just be a fad like the Kentucky's were, or the MM's of a few years ago. I own an MM myself and like it quite a bit. But I don't see any Eastman becoming a valuable mandolin in the next 20 years, nor do I see Eastman becoming the next Collings or Gibson. Just like my MM will never be.

In Summary, I don't see Eastman affecting the market one way or the other.

With that said, I would like to thank Eastman for providing what may be a better quality mando than my MM at a better price. Thus attracting more people to our instrument. The more of us the better.

Long live the mando, and may you get the best tone out of what you have !!