Snowplows would be a good example. Theres no demand for snowplows for months on end, then when a snowstorm hits the demand is (generally) higher than supply. Then after the roads are plowed the demand drops again.
Because of this you can’t really spread them around depending on supply/demand since demand is roughly the same across a market (unless you count international markets, ie moving them from the northern hemisphere to the southern hemisphere). You can’t have an agreement where say Atlanta will borrow snow plows from Ohio since if Atlanta has demand for them, then so does Ohio. the only solution is to have them sit idle for months on end during spring, summer and fall, then for demand to skyrocket during a storm until they sometimes work for days on end straight.
Is there an economic term for this kind of market?
Marketing guy here. Seasonal product is the term I’d use.
A bit more prosaic of an example than snowplows is Tuna Helper. Tuna Helper is a sub-brand of Hamburger Helper, fine-tuned for use with tuna instead of ground beef. It is, of course, sold year round, but its sales spike dramatically during Lent (when most Catholics abstain from eating meat), then falls off again for the rest of the year.
Why did they borrow snow plows from New Jersey? There are places a lot closer to L.A. that have snow, and presumably have snow plows. Places like the San Bernardino Mountains, or Mono County, or Utah, or Colorado.
When LA had snow, presumably they had even more snow and needed their plows. Maybe there was no snow at the time in New Jersey. (Still, given the round trip to the west coast the plows would have been gone at least a week, so that seems like a risk.)
I agree that the snowplow example is a seasonality effect.
The question in the OP asks more broadly about a term where demand is flat, then spikes past supply, then returns back to normal. When this is unexpected, it is more generally called a “demand shock.” An example might be where someone authoritative falsely claims that Grape Kool-Aid cures coronavirus. The shock lasts only until people realize it doesn’t work.
Demand shocks can be positive or negative. Imagine if instead of curing coronavirus, people were temporarily convinced Grape Kool-Aid caused cancer due to a data reporting error in a big scientific study. When reexamination brings the truth out, people resume drinking Grape Kool-Aid at normal levels.
There are also supply shocks that depress supply down even though demand has stayed the same. Imagine, for example, if there were to be a fire at the only factory that produces authentic Huy Fong Foods Sriracha sauce (the one with the rooster on the bottle) right in the middle of the one month a year when they make the sauce. Diehards would obviously push the price of the remaining stock up a lot.
I’m sure there are supply shocks the temporarily increase supply but I’m having a hard time thinking of a modern one. An example from days past might include a ship bringing a literal boatload of a hard-to-grow locally spice to a market in England. It might be hard to say when the next ship might come in but, for the time being, the price of that spice will be depressed.
A supply shock temporarily increasing the supply of turkey apparently led to the invention of TV dinners
" According to the most widely accepted account, a Swanson salesman named Gerry Thomas conceived the company’s frozen dinners in late 1953 when he saw that the company had 260 tons of frozen turkey left over after Thanksgiving, sitting in ten refrigerated railroad cars. (The train’s refrigeration worked only when the cars were moving, so Swanson had the trains travel back and forth between its Nebraska headquarters and the East Coast “until panicked executives could figure out what to do,” according to Adweek.) Thomas had the idea to add other holiday staples such as cornbread stuffing and sweet potatoes, and to serve them alongside the bird in frozen, partitioned aluminum trays designed to be heated in the oven. Betty Cronin, Swanson’s bacteriologist, helped the meals succeed with her research into how to heat the meat and vegetables at the same time while killing food-borne germs."
I’ve heard this story but it doesn’t add up. The easy part is the idea: ‘Oh, hey, let’s just cook and slice and package and freeze the ten rail cars of turkey.’ The hard part is doing it from the ground up. The cost of some frozen turkeys must have been insignificant compared to launching an entire industry.
Happens frequently with agricultural products. Consumers don’t see it as often except with fresh produce because most agricultural products go through multiple processing and distribution channels, which tend to smooth out price spikes and dips over a longer time period.
Bumper crops of grain come to mind, though, as Kent Clark notes, the supply chain is complex enough that a bumper crop of wheat may not immediately translate to lower prices for bread.
Yeah, I thought about agricultural products but I figured they don’t really count as positive supply shocks because, frankly. massive swings in agricultural output are a fundamental part of the market rather than a big surprise to market participants. But I’m not an agricultural economist, so I’ll defer to you that they are considered positive supply shocks.
No. “Bubble” is generally applied to an irrational increase in price that is caused by speculation rather than any fundamental reason for an increase in demand.
Launching a new product would be expensive for you or me, but for a company already in the business of selling food, adding a new product is less of a big deal.
I’m trying to understand whether the OP is talking about a sudden spike in the desire to buy a product, perhaps a short-lived one. Versus talking about a sudden spike in the desire to use owned goods, typically long-lived ones.
Snowplows, as in the things cities & state highway departments own by the dozen or hundred, are not suddenly bought in response to a freeze. They may be used heavily, and borrowed from unaffected nearby areas, when the need for plowing surges.
Quite.
There is a spike in the demand for snow plow services.
There may well be a sufficient supply of snow plows nationally, but they are not currently located where they are needed.
The rational and economic approach in this case is to hire or borrow your neighbour’s snowplow which is sitting idle. Not go to the significant expense of purchasing and ongoing maintenance on a machine where the demand is unprecedented or ephemeral. By the time it arrives the crisis may well have passed.
This is distinct/opposed to many of the posts above which about agricultural products which typically cause a seasonal surge in supply.
The correct demand analogy for agriculture is in the seasonal demand for the equipment/infastructure to harvest the seasonal produce. eg combine harvesters for cereals etc.
Of course, since this thread is about snowplows, there is another Simpsons episode that might be even more self-suggestingly pertinent to our discussion here.
