BRAKIE wrote: Ed,Here is my point about not using "street prices" as a guide and this is just the cheaper on line stores.. Lets look at Athearns RTR GP38-2. From M.B.Klein $69.98-$39.99 From First Hobbys List Price: $69.98 First Hobby Price: $49.99 From First Place Hobbies Retail Price: $69.98 Your Price: $48.99 Toy Train Heaven $50.39-53.99 depending on road names. So you can see the above prices vary..Thats why I think its lopsided economics to use street prices.Again these are the cheaper on line discount shops...The discount prices from other shops can be higher as I have noted while shopping on line.
Ed,Here is my point about not using "street prices" as a guide and this is just the cheaper on line stores..
Lets look at Athearns RTR GP38-2.
From M.B.Klein
$69.98-$39.99
From First Hobbys
List Price: $69.98 First Hobby Price: $49.99
From First Place Hobbies
Retail Price: $69.98 Your Price: $48.99
Toy Train Heaven
$50.39-53.99 depending on road names.
So you can see the above prices vary..Thats why I think its lopsided economics to use street prices.Again these are the cheaper on line discount shops...The discount prices from other shops can be higher as I have noted while shopping on line.
Brakie,
I agree that there are several market prices to choose from. This does not mean that there isn't a average or low price to use for some type of analysis. This is true for any product on the market. Hell, milk is cheaper at one grocery store versus another, sometimes by significant amounts. This does not mean that a good analysis would use suggested retail price from the dairy to conduct a market analysis. We may need to use averages or lowest price available for an analysis across time. Better yet, we could use a consistent "low price" vendor. I'm not aware of which vendors are still in business that were around 20+ years ago but I'm sure they are there. Their cost structures may have changed a bit but they might be a good avenue for a simple analysis.
Good discussion.
WickhamMan wrote: BRAKIE wrote: Paul,Yes there has been some prices lowered,some stayed the same-the Atlas locos you pointed out-while others has jump 3-4 fold over the last few years thats why MSRP should be used.After all we don't need VOODOO economics in this discussion since the price of the hobby has raisen greatly over the past few years.. Happily there is discount prices to aid our buying power. This sounds a lot like a conclusion at this point. I think we need a lot more data than has yet been presented to come to such a conclusion. It is not "VOODOO" economics to use actual prices to conduct analysis. Rather, most peer reviewed journals would reject analyses that used MSRP unless there was accompanying evidence that actual market prices were highly correlated with MSRP. A notable case of this being done is with housing data. There have been recent articles written that utilize assessment values as a proxy for actual prices. I think using MSRP would be in a similar vein although, to date, I've not seen any analysis that would show that MSRP is directly correlated with sale prices, especially across multiple time periods. MSRP is a positioning device used by vendors to signal quality indicators of their goods. In markets where good quality is not well know, my guess is that MSRP is highly correlated with sale prices. However, in our hobby, I'm dubious that quality of the goods is unknown. More likely, MSRP is a device employed to help distributors, particularly hobby shops, to protect margins.Given the large changes in distribution channels over the past 15 years, it is likely that there is less adherence to MSRP prices in the market. As more hobby shops close due to competitive pressures from the internet, we have likely seen increasing distance between MSRP and actual sale prices.
BRAKIE wrote: Paul,Yes there has been some prices lowered,some stayed the same-the Atlas locos you pointed out-while others has jump 3-4 fold over the last few years thats why MSRP should be used.After all we don't need VOODOO economics in this discussion since the price of the hobby has raisen greatly over the past few years.. Happily there is discount prices to aid our buying power.
Paul,Yes there has been some prices lowered,some stayed the same-the Atlas locos you pointed out-while others has jump 3-4 fold over the last few years thats why MSRP should be used.After all we don't need VOODOO economics in this discussion since the price of the hobby has raisen greatly over the past few years..
Happily there is discount prices to aid our buying power.
This sounds a lot like a conclusion at this point. I think we need a lot more data than has yet been presented to come to such a conclusion. It is not "VOODOO" economics to use actual prices to conduct analysis. Rather, most peer reviewed journals would reject analyses that used MSRP unless there was accompanying evidence that actual market prices were highly correlated with MSRP. A notable case of this being done is with housing data. There have been recent articles written that utilize assessment values as a proxy for actual prices. I think using MSRP would be in a similar vein although, to date, I've not seen any analysis that would show that MSRP is directly correlated with sale prices, especially across multiple time periods.
MSRP is a positioning device used by vendors to signal quality indicators of their goods. In markets where good quality is not well know, my guess is that MSRP is highly correlated with sale prices. However, in our hobby, I'm dubious that quality of the goods is unknown. More likely, MSRP is a device employed to help distributors, particularly hobby shops, to protect margins.Given the large changes in distribution channels over the past 15 years, it is likely that there is less adherence to MSRP prices in the market. As more hobby shops close due to competitive pressures from the internet, we have likely seen increasing distance between MSRP and actual sale prices.
Who/how is the “street” price going to be set? As others have noted, there is a wide range of "street" prices. Maybe e-bay final sales should be used as a standard street price if that is what is required rather than MSRP. But I would have thought that you would have needed a standard reference over time for the comparison to be valid and only MSRP provides that consistent reference. You may then be able to extrapolate that difference (if any) and see what additional savings can be had by buying at a “street” price.
My gut feel is that there is no difference overall in the cost of the hobby over time but there is a wider range of costs that people can chose to buy from. It is a choice one must make if DCC and/or sound and/or other high cost items are necessary for them to participate in the hobby. Me, I am quite happy with no sound, no DCC at this point.
Topic: Unseemly profits?
I’ve read many comments on this forum and others to the effect that vendors are bilking us modelers and making unseemly profits. Referring back to the diagram I introduced earlier, we can see that in a competitive market, the price of a good is determined by the intersection of the aggregate demand and aggregate supply curves.
To answer the question at hand, we need to delve a bit more into what these curves represent. Specifically, I’m going to focus on the aggregate supply curve because this is where we can see if, and where, profits are being made. It’s important to remember that this is an aggregate curve. This means that it essentially represents the collective cost of vendors supplying goods in the market.
The equilibrium point represents the “marginal player” in the market. That is to say, the price at the equilibrium point tells us what the marginal cost of the vendor who makes ZERO profit exists within the market. Why is it zero? Because if the market price somehow existed at a point where all of the vendors where making money, some (many, most) of the vendors would drop their prices to capture greater market share. Because some vendors cannot compete at the resulting equilibrium price, they drop out of the market. However, this also means that there are, invariably, vendors within the market who are making profits at this point. The question is, how much?
It is critical to understand that the vendors do not set the market price for goods unless they have a monopoly. They are “price takers” in that they can only sell based on the market demand. The profits in the industry are mostly determined by which vendors have the lowest cost structures. This is an important point in today’s markets.
Is there a reason why one vendor would have significant cost advantages? It is possible, but only because of volume. It is highly unlikely that a vendor today would have a technological advantage over another. It is also unlikely, that one vendor would have a managerial technology advantage either. By managerial technology, I mean that one company is significantly better run than another. We see this in high volume businesses like PC sales. Dell has significantly better performance management systems than their competitors.
So, can we surmise that in our competitive model railroad goods market, no vendors make huge profits because their cost structures are in line with one and other and the demand curve determines the market price? Perhaps but I doubt it. Why?
Topic: Substitutability
The ability of customers to accept substitutes for goods has a large impact on prices. Going to a simple market, say paper clips, we can see this at work. It is highly unlikely that individuals hold particularly strong preferences for one vendor’s paper clips more than another’s. So, if one vendor raises prices, customers quickly switch to another vendor. This is somewhat less the case in markets like bread, cola and cereal.
In the model railroad market, buyers can be highly selective in their purchases as several posts on this thread have indicated. If you are only willing to purchase a certain quality coach car under a specific road name, you have eliminated a buyer’s advantage in choosing substitutes. Vendors of those items are, in effect, a monopoly from your perspective. They have an incentive to increase prices. This drives out some individuals (who are willing to consider substitutes) and leaves those who will pay higher prices. The result is significant profits for vendors on those items.
Does this happen often? That is really hard for me to say at this point. Perhaps a bit of a poll on this forum would give us some hints. Do you restrict yourself to particular equipment on particular roads? I think we might be able to categorize the market in a few segments:
Rivet Counters – those only willing to purchase specific roads within specific eras and, potentially, specific equipment. (i.e. “I’m modeling the NYC’s Chicago division in 1955 and they only used three engine types”)
Proto-Lancers – those who are attempting to model a specific road (or set of roads) within a general era but aren’t very particular about getting the prototype exactly right.
Freelancers – Those creating their own road names but may be modeling under a specific era using the general type of equipment available during that timeframe.
Misers – Those just looking to run trains. They aren’t’ very particular about equipment, road names or eras. Basically, they are looking to buy the cheapest thing available.
What are you? The higher you categorize yourself on this list, the more likely that vendors will make higher profits on your purchases. As a few have stated earlier, you have a low “elasticity” in your demand. You want a particular piece of equipment. If only that will satisfy you, you are likely to pay through the nose for it. If you are lower on the list, then you probably will pay much lower prices within the hobby as you are quite open to substitutes.
Where do you think most modelers are? This is an open question that I don’t have the answer to. Opinions?
Finally, it is possible that “rivet counters” can get lower prices. How? If the aggregate demand for a particular piece of equipment for a particular road name is very high, we will see multiple vendors enter that market and give buyers a choice. This will drive down prices. This is highly unlikely in a low volume carrier but probably happens more often in larger roads (i.e. Santa Fe, EL, NYC, etc.). So, if you want to be a “rivet counter” and want low prices, pick a popular road!
Questions and comments welcome!
Next Topic: Changes in demand over time. What can demographics tells us?
Ed: I sincerely wish you luck in your analysis...a lot of work will go into this. From my perspective I will offer these thoughts:
I am not a manufacturer, so they can correct me if I'm wrong, but it would seem to me that the manufacturers actually make LESS profit on the "rivet-counters" rather than more. I'm no economist either, as previously noted, but if you only make 300 units rather than 1000, wouldn't the cost of producing the item be the same yet the recovery of the profit would be less for the far fewer pieces sold? I think it would actually be less or the same profit margin but I don't see how it could be more.
Good luck on finding some of these low-price mail order houses from years ago. Most of them are out of business because they found out you can't sell something for nothing. I suppose a couple of exceptions to the rule would be Train World or Standard Hobby.
But I respectfully disagree, again, that if a standard price - on the very same product - is not used as a benchmark, then all the CPI data and inflation index data is meaningless. The only way to accurately determine real price increases is to look at the MSRP of an item from 25 years ago and compare it with the IDENTICAL item today. That leaves you with few choices. You cannot compare, for instance, most Athearn products from 1982 as the line is much better now than back then.
You may look at Athearn trucks: .85 a pair in 1982, 3.00 today. Atlas 9" straight track: .38 each in 1982, .90 each today.
But any product that has been even marginally improved in the last 20 years cannot be included in accurate statistical data.
Still new to the forum - if these price threads have appeared every week for the life of the forum then I doubt that any amount of work Ed does will accomplish much. I suspect this disatisfaction has more to do with the price of gas being 3 times what it was 9 years ago. Also the gap that is created when there are 250.00 sound and DCC locomotives available yet not affordable for the majority of modelers. When I was a teenager there were similar gaps...I just accepted the fact that (back then) brass was out of my budget, and I worked hard until I could afford an AHM or Athearn locomotive and was happy running it on my layout. Course I didn't have a forum available to gripe about prices back then either.
WickhamMan sez:
Better yet. Limit your purchases to equipment types for which there are almost as many manufacturers as modelers. There are so many manufacturers of UP Big Boys and Challengers out there that it's a wonder the manufacturers aren't giving them away. At least as far as Big Boys go, you could probably get 25 of them (as many as UP owned) for under $10,000 and they'd all be sound and DCC equipped. Shoot, if you offered to take 25 Big Boys off the hands of (insert name of manufacturer here), they'd probably give you a volume discount.
Hmm. I wonder what kind of a discount you could get on 425 PRR K-4's, 574 PRR L-1's and 598 PRR I-1's. Even more intriguing is the thought of speculating in HO scale steam locomotive futures.
Andre
P.S. Where low volume carriers are concerned, I did see a hobby shop offering an Athearn Genesis 2 unit set of Bangor and Aroostook F-3A's for $159.95, about $100 under MSRP. Unfortunately, they're gone now.
WickhamMan wrote: Topic: Unseemly profits? Rivet Counters – those only willing to purchase specific roads within specific eras and, potentially, specific equipment. (i.e. “I’m modeling the NYC’s Chicago division in 1955 and they only used three engine types”) Proto-Lancers – those who are attempting to model a specific road (or set of roads) within a general era but aren’t very particular about getting the prototype exactly right. Freelancers – Those creating their own road names but may be modeling under a specific era using the general type of equipment available during that timeframe. Misers – Those just looking to run trains. They aren’t’ very particular about equipment, road names or eras. Basically, they are looking to buy the cheapest thing available.
This is rather aptly illustrated by the Trainworld business model. Pre-order new releases are closer to MSRP. At the other end of the scale you can pick up P2K's for under $30.00 but they choose the road name. It is a great deal, but not if you care what the road name is.
Simon Modelling CB&Q and Wabash See my slowly evolving layout on my picturetrail site http://www.picturetrail.com/simontrains and our videos at http://www.youtube.com/user/MrCrispybake?feature=mhum
simon1966 wrote: WickhamMan wrote: Topic: Unseemly profits? Rivet Counters – those only willing to purchase specific roads within specific eras and, potentially, specific equipment. (i.e. “I’m modeling the NYC’s Chicago division in 1955 and they only used three engine types”) Proto-Lancers – those who are attempting to model a specific road (or set of roads) within a general era but aren’t very particular about getting the prototype exactly right. Freelancers – Those creating their own road names but may be modeling under a specific era using the general type of equipment available during that timeframe. Misers – Those just looking to run trains. They aren’t’ very particular about equipment, road names or eras. Basically, they are looking to buy the cheapest thing available. This is rather aptly illustrated by the Trainworld business model. Pre-order new releases are closer to MSRP. At the other end of the scale you can pick up P2K's for under $30.00 but they choose the road name. It is a great deal, but not if you care what the road name is.
Simon,
Good pickup on that one. Indeed, the Trainworld model looks to exploit the market by better calibrating their sales model to actual demand. I'm wondering what the best way would be to find information on which roads are most modeled. Perhaps a look at the statistics presented on the fallen flags website would be of use:
http://www.rr-fallenflags.org/
They list the most popular sections of their site each month. The prior two months shown seem to be pretty consistent. Does anyone have any thoughts about how to assess the popularity of particular roads? Would the fallen flags statistics correlate with model railroader interest?
One Track Mind wrote: I am not a manufacturer, so they can correct me if I'm wrong, but it would seem to me that the manufacturers actually make LESS profit on the "rivet-counters" rather than more. I'm no economist either, as previously noted, but if you only make 300 units rather than 1000, wouldn't the cost of producing the item be the same yet the recovery of the profit would be less for the far fewer pieces sold? I think it would actually be less or the same profit margin but I don't see how it could be more. Good luck on finding some of these low-price mail order houses from years ago. Most of them are out of business because they found out you can't sell something for nothing. I suppose a couple of exceptions to the rule would be Train World or Standard Hobby. But I respectfully disagree, again, that if a standard price - on the very same product - is not used as a benchmark, then all the CPI data and inflation index data is meaningless. The only way to accurately determine real price increases is to look at the MSRP of an item from 25 years ago and compare it with the IDENTICAL item today. That leaves you with few choices. You cannot compare, for instance, most Athearn products from 1982 as the line is much better now than back then. You may look at Athearn trucks: .85 a pair in 1982, 3.00 today. Atlas 9" straight track: .38 each in 1982, .90 each today. But any product that has been even marginally improved in the last 20 years cannot be included in accurate statistical data. Still new to the forum - if these price threads have appeared every week for the life of the forum then I doubt that any amount of work Ed does will accomplish much. I suspect this disatisfaction has more to do with the price of gas being 3 times what it was 9 years ago. Also the gap that is created when there are 250.00 sound and DCC locomotives available yet not affordable for the majority of modelers. When I was a teenager there were similar gaps...I just accepted the fact that (back then) brass was out of my budget, and I worked hard until I could afford an AHM or Athearn locomotive and was happy running it on my layout. Course I didn't have a forum available to gripe about prices back then either.
One Track,
I think you make an interesting point about costs of production. However, the price of a good is determined by the combination of costs and demand. Given that most companies produce a model in several road names, it is likely that the cost per unit is spread across all roads. Often, only the paint job changes. Therefore, the margins on each unit would be determined by the sale price minus the standard production cost. Because popular roads would have greater market potential and greater competition, it makes sense that vendors would need to be more "competitive" in those roads, thus, lowering prices. Again, the MSRP belies that because the MSRP is standard across roads when, in reality, people pay less for certain roads and more for others in the open market. Again, we can look at the Trainworld model to see this (Thanks Simon).
You make a great point about the price of products that undergo technological changes over time. Are cars more expensive today than 30 years ago? How about TVs? Calculators? As you might guess, almost all products undergo technological improvements over time but this does not prevent an analysis of the cost of ownership. Generally, we would anticipate the technology to improve. At certain times, we would also guess that the newest technology would drive up costs on those products that include it and drive it down on those that don't (think HD TVs vs. standard ones today). Over time, however, we would expect prices to stabilize to the point where the product's utility is comperable to that of one in the past (i.e. my satisfaction with my 42" HD Plasma screen TV is comperable with that of my 31" tube TV from 15 years ago). BTW, this type of conversion is used in CPI calculation where the "basket of goods" is constantly updated to include the modern version of each item.
However, your point is well taken that we may not be able to accurately gauge the price of differing models and roads across time. This would be true whether we use MSRP or advertised prices in MRR. Again, I think the MSRP is meaningless because it doesn't directly translate to actual prices and is more likely to be correlated closely to sale prices in the past than today.
Well, Ed, I'll tell ya...I just sell model trains for a living. Some of the information and calculations you and Andre are talking about quite frankly give me a headache! You will be teaching a lot of us about economics and I look forward to future threads.
Keep in mind this little story. Many times over the years I've mentioned to both customers and hobby business reps something along the lines of "what do I know, I don't have a business degree." Most of the time they respond with "In this business, it's probably best that you don't have one because a lot of the principles taught in school really don't apply to our business." Maybe they were just being nice.
Or maybe it's possible that some things that apply to other products may not work here. Sounds like we agree to some extent on that.
But I was only trying to make sure that we are comparing apples to apples and oranges to oranges.
One tip before I go home for the night: beware of the "street value" of particular road names as you have discussed. That of course would vary greatly depending on what part of the country you are in. Possibly.
But like I said, good luck with the analysis...I understand a lot of what you are saying, just not sure all of it applies to our hobby or the model train business. A noble venture you have undertaken for sure.
Would the fallen flags statistics correlate with model railroader interest?
Because popular roads would have greater market potential and greater competition, it makes sense that vendors would need to be more "competitive" in those roads, thus, lowering prices. Again, the MSRP belies that because the MSRP is standard across roads when, in reality, people pay less for certain roads and more for others in the open market. Again, we can look at the Trainworld model to see this (Thanks Simon).
...I think the MSRP is meaningless because it doesn't directly translate to actual prices and is more likely to be correlated closely to sale prices in the past than today.
Guys,Food for thought..Atlas went from mass production to limited run and now "made to order"..Then they introduce the "Trainman Line" that will be mass produce.Athearn still makes BB kits as well as RTR cars.Even BLI has went low keyed with the introduction of soundless locomotives.
One can not help but wonder if we are seeing the return of low price cars and midrange price locomotives compared to $25.00 plus cars and $140 plus locomotives..
Perhaps the silent(read computerless) masses have spoke with their wallets?
Larry
Conductor.
Summerset Ry.
"Stay Alert, Don't get hurt Safety First!"
The Limited Run style of business did hurt the hobby Brakie.
I too have noticed an increase of lower priced and reruns. Now if only Walthers can reissue some of those structure kits....
Alot of things make it to the hobby store. But when the people look up an item in a paper catalog instead of a computer and internet and learn that it is either OOP, BACK ordered or not availible or... worse... reservations taken with no other resources or photos 6 - 12 months before it arrives to the USA it's very difficult to buy anything other than magazines, small supplies and paint in this hobby.
They probably will have to go to the hobby shop at least once a week to grab the item that just arrived before it's all bought out. I point to the Broadway Limited Passenger cars as an example. I saw a few copies in TWO hobby shops that are already reserved for other people and none for sale on the shelf. To me the BLI Passenger cars are a mystery item that elicts curiosity because I have yet to see one in person. Makes the Walthers supply of passenger cars plentiful and fruitful with a bursting storehouse of harvest compared to the limited quantity runs.
Maybe one of the locals will bring it to the trainshow next year and we can all have a look at the nice train.
Another thing is the recent announcement of the Rapido Passenger Cars in the MR magazine. The photos are very restrictive and does not really show the whole car. I am not encourage to seriously consider this item because it probably will be sold out when anyone finally gets around to releasing full visual information on them probably in the 2008 walthers catalog.
So, the wallet goes to what is availible today either at the store or online. Not something that is sight unseen and unknown. I am a customer that likes to pick up an item and explore it's potential either on a test track or thru someone else's display on a layout running as part of scenery or train.
I think there is plenty of demand for everything in the hobby. The most obscure limited run item can be made in mass quanity and sold for years. Perhaps it is the manufactor who wants to spend X dollars to get Y profit before christmas to make a quick buck and have a nice holiday really fast instead of making Z product availible for a number of years like many others (Athearn for example) have done.
That quick profit evaporates like a hot desert mirage when they realize that they need to quickly introduce another 3000 or so copies of an item in time for next christmas while dealing with the people who are grumbling at not being able to get the item or watching exhorbriant prices on ebay such as 250 dollars for a 40 dollar retail kit plus shipping.