Luxury Branding – Is it an Imperfect Market?

In economics, a luxury commodity is something that has increased in price, but decreases in need, so in a market such as our current one with recession, a luxury item is something that has decreased in need because there has been a decline in population to purchase that item. Now suppose that you are willing to invest in luxury and take a calculated risk that there will be an increase in income, but there is no guarantee that an increase will take place, as our population continues to shrink due to natural causes, then let’s say that we have another mass generation, who may not have the desire to spend as much as their parents or grandparents did, but they do have the ability to spend more due to technology and the Internet, so now they can buy whatever they want, increasing the demand even further, and prices go up. What happens is that there are a number of individuals who enter the market with the intention of buying luxury items, in order to resell when things turn around and the economy starts to rebound and the economy increases again. So, if there is no real investment in a luxury commodity, what do these people do?


If everyone were to go back to the way they used to spend their income, no one would be able to buy these high priced items, but since there are so few people who are realistically considering investing in the high end goods that everyone wants, the supply still outstrips the demand, and prices continue to rise. If everyone returned to their old spending habits, then demand would likely decrease and prices would fall, causing inventory problems for those who hold the luxury inventory, but they would still have income. If everyone stopped buying these luxury items then the supply would also increase and prices would fall, causing inventory problems for the manufacturers, wholesalers, retailers, and the distributors. And so it goes on.

Okay so maybe you’re not saying that all of this is intentional. Maybe you’re just stating the simple truth. With the ever increasing incomes level, there is no way that people can afford to purchase the things that they want to buy, unless they go into debt to do so. But if everyone just bought into the hype of these brands and pushed them without question, the whole concept of what makes something expensive, exclusive, or even luxurious is lost. In today’s world, people cannot afford to be seen shopping at a brand named Cadillac, because most people can’t afford that level of luxury.