Economics Behind Limited Edition Products

Basic economic theory suggests that when a product is produced in limited supply, the demand for that product is very high. As a result, the company producing the limited product can charge a much higher price. However, in the case of sneakers, the economics is not as straightforward.

Sneakerheads and sneaker culture has developed a drive and demand for rare and limited edition sneakers, creating a huge market for the resale market. Sneakers that were originally sold for $100 might resell for three times the price. For example, Sean Wotherspoon collaborated with Nike to release a new Air Max 97 that were originally sold for $160 but there were so few of these shoes released that the resale market is selling it for nearly $1000.

It’s no secret that the sneakerheads who deal rare shoes are making good profit by selling them way above retail value. But the companies who produce these shoes don’t reap the financial benefit of these limited edition shoes. In fact, the difference in retail price and resale price represents how much the consumers are willing to pay for the produce. Companies could price their shoes at a much higher price and maintain the limited quantity, but they don’t. As a result, these companies seem to be losing out on a potential stream of profit, but that doesn’t seem the case when this business model is growing increasingly popular.

Large companies like Adidas and Nike use the limited edition business model to bolster other campaigns. The release of the Yeezy Boosts was huge. Kanye fans everywhere flocked to buy these shoes that were retailed for around $200 but the resale price was easily a few thousand. The release of the Yeezy boosts were an introduction to Adidas’s new boost technology. This cushioned sole was later featured in more affordable shoes like the NMDs and Ultraboosts that were much more widely available and at a more affordable price. Conclusively, the purpose of releasing the Yeezy Boosts was not for the immediate financial profit, rather the limited supply and high demand was used to create hype around the adidas brand as a whole and bring attention to the release of the more affordable shoes with boost material.

Originally published at www.ifashionnetwork.com on June 23, 2018.