Prices Jumping Too High?
By: Ross Pelzel
Since 1984, the world’s most iconic and recognizable basketball shoe has been the Air Jordan. Whether on the court or on the street, the image of the Air Jordan is unmistakable. But, how much are people willing to pay for style? The prices for these sneakers are starting to resemble prices that should be found on Rodeo Drive, not a Foot Locker. The most recent release of the new Jordan 11 Retros showed a 10 dollar price increase from the release of 2013, taking the price up to $170.
And that’s just the retail price, on Ebay and other sneaker buying websites, minimum prices for Air Jordans range from 210 to 230 dollars, 40 to 60 more than the retail price, with the most expensive sales going up to around 340 dollars for one pair of these sneakers.
So where does one draw the line when trying to buy a pair of Air Jordans? Apparently, even after the price increase on the latest releases, the demand is still very high. According to the Washington Post, police had to be called to malls all over the U.S to control crowds vying to get their hands on a pair of the shoes.
The reason behind all of this sneaker pandemonium is the genius business plan of Nike. Nike makes sure to keep the supply of these shoes well below the demand. This results in a higher equilibrium price, allowing Nike to charge absurd prices for their brand. And it’s working, in 2013 just the Air Jordan brand made 2.3 billion dollars in profit just from retail, and profit is up 5% so far in 2014. But where will Nike eventually overstep its boundaries and charge a price that is too high even for the most avid Air Jordan fan? It’s hard to say, but with the large amount of available substitutes, these sneakers are an elastic good that could still end up in a large surplus of unwanted sneakers, should Nike not play this very carefully.
In my opinion, prices for Air Jordans are already too high, the lack of sales or any price breaks in these sneakers is ridiculous and not something that I want to funnel my minimum wage salary into. The lack of surplus of these sneakers is amazing and drives the prices too high for me to realistically put my hands on the new releases. But, in no way am I suggesting that Nike should change their business plan. The ingenious system that Nike has come up with leaves customers forced to pay the high prices that are being charged for the basketball shoes that were formerly 65 dollars when they were released in 1984. Although there has been significant controversy about the ethics of Nike's business plan, the company still generates billions of dollars in profit and has become the single leader in the production of athletic gear, whether it’s footwear, clothing, or equipment, Nike has created a monopoly in the sports world. This monopoly might just be centered around the prestigious and expensive Air Jordan Franchise.
Works Cited
Online. Associated Newspapers, n.d. Web. 12 Oct. 2014. <http://www.dailymail.co.uk/news/article-2014325/Nike-workers-kicked-slapped-verbally-abused-factories-making-Converse-line-Indonesia.html>
Ross,
ReplyDeleteI agree that the business plan that Nike has put in place for their line of Jordan shoes. By limiting the supply it will drive up the demand which causes the sale price to increase. I also disagree with your notion that the price will get to high for people to be willing to buy the shoes due to the fact that they most likely have experts who find the optimal price in which they can sell their shoes in a way that will create the most total profit on a yearly basis. The only thing that could truly endanger Jordan is a great economic depression due to the fact that there are many substitutes for Jordan shoes.
I just have to say this first, up to $300 for a pair of shoes? That is completely ridiculous, but you are right in saying the plan that drove these prices up is amazing. The fact that Nike was able to think this plan out and gain so much money just shows how economics can be used to help the produces much more than the public. I do wish I understood what made these shoes so popular other than the enormous price tag or shortage of the shoes.
ReplyDeleteNike is a very smart business, like you said they made more than 2 billion dollars in Jordan alone. Nike knows if their sales fall a little in Jordan, that they will still make money with all their other Nike products. Plus the Jordan brand is such an exclusive brand that mostly people will buy them even if the price increases by 10 dollars. So it will be a long time when Nike starts losing money from Jordan. Plus the best player to play the game in Michael Jordan doesn't lose often.
ReplyDeleteRoss, it is interesting to see how prestige works its way into consumer decisions. While economists assume that consumers act rationally, it can often appear as though a factor such as prestige resembles irrational behavior. This is not necessarily true, because, to many Americans, social appearance is a critical component of clothing. Therefore, this behavior is justifiably rational. As you have considered in this post, the question becomes how far a consumer goes to protect this rational behavior while still protecting his or her social status. In this situation, it appears as though only a small percentage of shoe purchasers still go for Air Jordans, and this number will likely neither fall nor rise. While some purchasers will stop buying Air Jordans because of the even higher price, an approximately equal number of customers will begin buying them to keep up with popular opinions. Therefore, Nike is in a great position.
ReplyDelete