Why the Price of Valuable Goods Fluctuates

The traditional economic model of supply and demand suggests that prices stabilize where supply meets demand. However, this principle often fails to explain the volatile pricing of highly valued goods, where prices seem perpetually "up in the air."

The fallacy lies in assuming that supply and demand alone dictate prices, ignoring external factors like consumer psychology, market speculation, branding, and global disruptions. This article explores why the prices of valuable goods fluctuate unpredictably, with examples from recent Indian brands (post-2022) and globally recognized international brands.

The core issue with the supply and demand model is its oversimplification. While it assumes rational actors and perfect market conditions, real-world prices are influenced by intangible factors like perceived value and market sentiment. For instance, luxury goods often defy supply-demand logic due to their exclusivity. Limited supply can inflate prices, but so can branding that creates artificial scarcity or heightened desire. Additionally, external shocks—such as pandemics, geopolitical tensions, or policy changes—can disrupt supply chains or shift consumer behavior, leading to price volatility.

In India, the rise of direct-to-consumer (D2C) brands since 2022 highlights this fallacy. Take Mamaearth, a skincare and wellness brand that gained prominence post-2022. Despite ample supply of natural skincare products, Mamaearth’s prices remain high due to its strong brand narrative around eco-friendliness and safety, appealing to health-conscious consumers. Its valuation surged after going public in 2023, driven by consumer trust rather than just supply constraints. Similarly, BoAt, a consumer electronics brand specializing in audio products, saw explosive growth post-2022. Its wireless earbuds, like the Airdopes series, command premium prices despite abundant alternatives, fueled by aggressive marketing and celebrity endorsements that amplify perceived value over basic supply-demand dynamics. These brands illustrate how pricing is often driven by emotional appeal and brand equity, not just production costs or availability.

Internationally, brands like Apple and Tesla exemplify this phenomenon. Apple’s iPhones, such as the iPhone 14 series launched in 2022, maintain high prices despite mass production. Apple’s brand loyalty and ecosystem lock-in create a demand that transcends supply availability, keeping prices elevated even when competitors offer similar features at lower costs. Tesla, another global giant, sees its vehicle prices fluctuate due to factors beyond supply and demand. For instance, in 2023, Tesla slashed prices on its Model Y to boost sales amid economic uncertainty, only to raise them later as demand rebounded and production stabilized. These shifts reflect strategic pricing decisions influenced by market sentiment and competition, not just raw supply or demand.

Gold, often seen as a "valuable" asset, further underscores the fallacy. Its price, which spiked during the COVID-19 pandemic in 2020 and continued to fluctuate through 2024, is driven by its status as a safe-haven asset during economic uncertainty, not merely supply constraints or consumer demand for jewelry. In India, a major gold consumer, festival seasons and weddings push prices up due to cultural demand, despite stable global supply.

The fallacy of supply and demand lies in its failure to account for human behavior, market dynamics, and external shocks. Whether it’s Indian brands like Mamaearth and BoAt leveraging emotional branding or global giants like Apple and Tesla manipulating perceived value, prices of valuable goods remain volatile because they reflect more than just supply meeting demand—they mirror the complexities of human desire and market unpredictability.

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