Why are only some luxuries stratospherically priced?

A meal at one of the top restaurants in the world tops out at around $300 while wine regularly goes for over $10,000 and up to $160,000. You would be hard pressed to find a suit much over $15,000 yet womens dresses go for well over $100,000 (I’m having a hard time pulling up solid figures for this as dressmakers seem reluctant to reveal their prices). Watches can go for up to a million dollars, art for $100 million.

Yet for every one of these, the “basic” version is pretty much the same price. $20 - $100. What makes some things price much, much higher on the high end while others seem to be relatively commensurate to the amount of skill and labour put into it? What factors go into how items are priced at the ultra-high end?

Note: For the purposes of this discussion, I’m deliberately excluding one off tributes of conspicuous consumption which rely mainly on lots of flashy jewels and rare objects or some odd gimmick to bump up the price.

What people will pay for it has to be the biggest factor. Which, for most of these items, is a price way way way way way above what makes sense for anything other than status.

The most important factor is demand of course. Something might be in higher demand because of the skills, material, and time that went into creating it or it might be something as simple as a brand name. A work of art might go for $100,000,000 because it’s a unique piece of history that cannot be duplicated. You can get a copy of the Mona Lisa but it’s not the same as a piece of work that the great Da Vinci once touched.

Maybe that isn’t so helpful though and I’m certainly not the individual to ask about spending $100 for a bottle of wine let alone $10,000. I have had people balk when they find out I paid $200 bucks for dinner for four and none of us even touched a drop of liquor. However the food and service were out of this world and it’s certainly something I couldn’t produce at home myself.

Marc

Well wine you mentioned is a ‘rare’ object. There is only so many 1992 ‘Chardiney Bolulies’ in existance in the world, and when you drink it, the world’s supply just went down. If it is a popular wine (most likely very tasty for some reason), there is going to be a great demand for it, and the only way to equalize the 2 is for the price to go up. Fortunatly in a free market ecconomy this happens automatically, I would wag in a gov’t managaed ecconimy, we would need to have a gov’t study as to what the price should be.

I would say it’s the same for the dresses, but in the case the supply is artificially limited. Famos French designer Jack Furlay will only makie so make of these dresses, far outstripping demand. Why Jack’s dresses are so popular, I’m not sure I can answer that.

In the case of dresses versus suits, really expensive designer dresses are often made to order, and are either unique or are one of just a few of their type.

Men’s suits all look pretty much alike; a fine Alfred Sung suit is better than a $250 Moore’s special, in that it fits a bit nicer and should last longer, but at twenty yards nobody can tell the difference. Even a custom made suit is generally made the same way any other suit is.

Although there’s a lot less variation in their looks, high-end suits are cut to fit exactly one person and really are one-of-a-kind items (search on “bespoke suits” for more info). So I don’t think that’s all there is to it.

Prostitutes. $1000.00 a night* pretty much buys you a talented, model-gorgeous woman ready to do anything that doesn’t disfigure her. Only a handful of posers claim to charge more.

*exact amount subject to inflation

I would say, personally, that one other major variation in pricing is based on the service/product divide. The restaurants you mentioned, though providing food (product), fundamentally are about service (the ambience, the wait staff, etc.). Because such things are, by definition, ephemeral, price inflation rarely occurs. I can’t buy a dinner at The French Laundry on the night of February 11th, 2006 and then sell it off again in a couple of years. That experience is gone.

Another reason is judgement. If a restaurant serves inferior food with bad ambience and service, it’s customers will notice and not come back; excellent service, food and ambience will be noticed, and attract repeat business.

Art, on the other hand; someone can claim an ugly heap of junk is “art”, and many will believe it. You can claim that something is just too profound that most people don’t understand it, and with art many will doubt their own judgement, instead of deciding you’re full of BS. And, of course, if you can’t judge it, you can’t price it accurately.

Add the status symbol effect, and it’s easy to get a bidding war started.

There’s a few things going on here.

First, some of these products really are much higher quality and require a lot more effort to make. In addition, many of the highest-quality items are made by hand. Any time you can crank stuff out on an assembly line the manufacturing cost drops dramatically.

A related issue is economy of scale. If you want to make something out of an exotic material or with fine jewel-like craftsmanship, by necessity the market for it is going to be rather small. That means you have fewer sales to regain your design costs, fixed manufacturing costs, management overhead, etc. So the price tends to skyrocket.

Then there’s Thorstein Veblen. He was an economist (the guy who coined the phrase ‘conspicuous consumption’) who noted that there is a certain special class of goods for which the demand increases with cost, which is the inverse of what normally happens. ‘Veblenesque’ goods would be things like Prada handbags, extremely expensive perfumes and makeup, and other such goods. To people who engage in conspicuous consumption, higher prices equal greater value, because the fact that they can afford this expensive stuff impresses others in their class.

But a lot of this expensive stuff really is expensive for a reason. A Brietling watch may not keep time any better than a $20 Timex, but it’s also fine jewelry. Have a look at the quality of the lettering on the dials, the finish of the hands, the quality of the intricate movement, etc.

A $400,000 Maybach is no faster or smoother than an $80,000 Lexus, but the money is in the details. The switchwork, the fine detailing, the higher grades of leather, the expensive, hand-fitted woods and accents, etc.

I have a pool cue that’s worth about $1,000. I got it as a gift years and years ago, and absolutely love it. But it doesn’t play any better than a $50 Dufferin cue. After all, a cuestick is just a length of wood with a leather tip on the end. So why the $1,000? Because it’s beautiful. It’s got 8 ebony inlays around the butt, all kinds of detailing, and the butt is made from fancy cocobolo wood. It’s wrapped in Irish linen, and feels very nice in the hand. An artisan put dozens of hours into hand carving the inlays and such. And the thing is, 20 years from now it’ll be worth more than it was new, whereas a typical mass-produced cue won’t.

But really, all that is justification. No one needs this stuff. But if you wear rings or necklaces, you’re spending money on stuff that has no useful value whatsoever. It’s purely decorative. I fail to see how spending $1,000 on a fine watch is any less rational than spending $1000 on a diamond ring.

Those are all good points, Sam, but I don’t see anything in there that could explain the price discrepancy between top-end men and women’s clothing. I think any explanation for that is going to go a long way towards explaining the rest of the examples.

I don’t know… Maybe if we had some specific examples? Perhaps you’ll find that those $100,000 gowns are studded with diamonds and pearls. Also, I think in the case of gowns worn by royalty and public figures (hollywood stars, etc) the ‘Veblenesque’ explanation fits perfectly. If a starlet can be seen wearing a $100,000 gown, it means she’s rich and successful, and you’ll notice the price of the gown is always public knowledge. The publicist makes sure of it.

Also, a lot of those gowns are one-off designs, whereas men’s suits are usually made from a pattern and then tailored to fit the individual. And some of those gowns are incredibly complex. A designer might spend a long time coming up with the concept, making samples, etc.

Oh, and I’ve often noticed that the people wearing them don’t actually pay for them. For example, Victoria’s Secret has a $1 million dollar bra that some supermodel wore at some big awards event. It made a big splash, and the bra showed up on talk shows and was written up by the media. But no one actually bought it - Victoria’s Secret loaned it to the woman who was wearing it. (btw, it was worth $1 million because it was studded with diamonds. Lots of them)

That’s the perfect example of a Veblenesque good. The only reason it was popular and of interest was because of its stratospheric price. Had they made one with cubic zirconia costing $5,000, no one would have cared.

I’m curious as to how the price is determined on some of this stuff. For example, on a recent television program about a restaurant in a Las Vegas hotel, the resident wine captain was giving a tour of the wine cellar and pointed out one bottle which was priced on the menu at $17,000.

Now, given that that bottle of wine must be pretty rare, and given that demand for it must surely be miniscule, how would one even go about determining what to price it at? In other words, how does information get around so that anyone wanting either to stock the wine in their cellar or sell it to the public knows what price to pay for it and/or to sell it for?

(And as a minor aside: In the case of the $17,000 bottle of wine, what happens if the customer – who may or may not know what he’s talking about – tastes it and declares it to be no good and therefore refuses it?)

I believe those really rare exotic wines are sold at wine auctions, and that’s how the price is set.

Any sommelier worth her salt would taste the wine first, when it was decanted. That’s why they wear that little taster-thingy around their necks. If the customer and the sommelier disagree on whether the wine has gone South or not, the owner would then step in.

Sounds logical; thanks, guys. I’m wondering too about how the owner or wine captain can reasonably expect to have to stock such a wine before it’s sold. Do wines like this sell regularly, or would they be prepared to have large amounts of money tied up in wines like this for an indeterminate period of time?

Depends on the restaurant. Some tie up a ton of money in a cellar, just to say they have done it. Others have an arrangement with a collector. I have heard of a restaurant in NYC where the sommelier had a key to a collector’s cellar down the block. The high-end of the wine list was this guy’s collection. If someone ordered one, a waiter would scoot out and fetch the required bottle. A win-win all around, since the restaurant owner was a good friend of the collector.

In Vegas, they stock wines like that to try to one-up Steve Wynn.

Thanks.

:wink: