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Showing posts from 2019

ETA Until No ETA?

In 2002 Switzerland became a full member of the United Nations.  It is perhaps surprising that it took six decades from the founding of the UN for Switzerland to join.  But Swiss adherence to political neutrality is now more than two centuries old, a doctrine which is no doubt difficult to follow amidst the coalition-building and lobbying that takes place in the UN.  The track record of avoiding international conflict for more than a century, though, is a testament to Swiss dedication to neutrality. Apparently, for some in the watch industry, avoidance of conflict ends at the border.  Also in 2002, Nicolas Hayek, the then-CEO of the Swatch Group, announced that his company would no longer supply mechanical movements to other manufacturers. Nicolas Hayek For years the Swatch subsidiary ETA  - Manufacture Horlogère Suisse had supplied its movements to a wide array of other watch brands.  From a business perspective this product line made little sense, Swatch was essentially enabli

The Luxury Watch Ban Hammer

Word is beginning to spread that buyers of certain luxury steel sports watches have unwittingly entered into a sacred pact with certain brands.  The pact is this: if you are eventually selected off an unimaginably long wait list you may buy a watch that isn't supplied in great enough numbers.  But you may not sell it.  If you do, you will be prohibited from buying that brand again.  The brand will drop the ban hammer. In an article published Nov 24, 2019 in GQ an anonymous author states that after having quickly sold his Patek Philippe Aquanaut 5167 for a tidy profit, "Patek Philippe knows that it is not [his] anymore. They found out and [he is] not sure how.  [His] name could be potentially circulated among other Patek ADs, [he is] told. The AD (who [he] had a great relationship with) will no longer offer [him] 'hard to buy watches'." And from Watchpro we have : "people that do manage to buy an investment-grade watch and flip it for a profit are being h

Update: Certified Preowned Vintage

A short post about an emergent service from brands: the certified preowned vintage watch.  In a prior article  I discussed the plan by Audemar Piguet to purchase preowned watches, refurbish and refresh them, and sell them through their chain of boutiques.  When I wrote my prior article the idea was basically "blue sky" in the watch industry and I shared some skepticism that it would succeed. Well, we now have another data point to consider.  Vacheron Constantin has launched a certified preowned service.  They chose to do so in Melbourne, Australia and we can tip our hat to the folks at Time and Tide Watches for their outstanding coverage of the launch .  Vacheron is calling this service "Les Collectionneurs" or "The Collectors" (I think, I don't really speak French), you can see the official descsription here .  And it appears that this first tranche of nine timepieces, refurbished and accompanied by a new two year warranty, has been something of

Buying a Watch: a Primer

Buying a watch is a fairly straightforward process for most people. The goal is usually to find something with an appealing design which tells the time accurately. But the watch industry has a surprising depth and breadth which is worth appreciating and understanding. It is very easy to inadvertently spend a great deal of money on a product which really isn't worth it compared to similarly priced alternatives. In this article I will describe the fundamental layout of the watch industry and the range of options available to buyers. Product Versions Almost all watches can be placed in one of three categories based upon their source of energy. The largest market segment, by far, is populated by quartz timepieces. Estimates are that production of these watches numbers in the billions. These watches are powered by a small battery (like other consumer electronics) which is periodically replaced when it runs out of power. Some quartz watches feature a rechargeable battery. T

Special Report: Only Watch Auction 2019

The Only Watch auction took place today in Geneva. In this auction manufacturers create unique pieces and auction them for a charity.  I streamed a live blog of the event as I watched it. I tried to give my impressions of how prices would land prior to bidding and I think I did OK with my predictions. There were some surprises and almost all of them were positive. 1 1. The Patek lot broke the world record for a wristwatch at $31 million. I think this surpassed even the wildest estimate of what would happen 2. Although the Patek will get all the attention the blacked out Tudor actually was a far bigger surprise. The Patek was 10x its estimated high. The Tudor was 63.6x at CHF 350k. This is really important to note. 3. Vacheron and JLC seriously underperformed. If these houses are able to build reputation in line with Patek then whoever won those lots can look forward to some impressive appreciation. Overall it is fair to say that these were extremely impressive resul

It's Smart and It's a Watch. Is It Though?

It is sometimes interesting to consider how products are named. Pepsi was invented by a doctor who found the name for his soda within the word "dyspepsia," the medical term for indigestion. Maybe that is why doctors rarely run marketing departments. Naming a beverage after an illness is not typical of brand campaign whiteboarding sessions. In any event, we now have a product line called "smart watches." It has a nice ring to it. You are smart because you wear it, it seems to say. Or the product is smart and who doesn't want to buy some smart and strap it on their arm? But from an economics perspective the term "smart watch" is pretty misleading. There are a variety of circumstances where defining the boundaries of a market is very important. Companies will want to know who they compete with in their market. Government regulators often need to identify markets geographically or by product characteristics in order to determine if a mer

Will CPAP Cure that Lemons Problem?

A Lemon Using CPAP To most people CPAP stands for Continuous Positive Airway Pressure, a medical device which assists those diagnosed with sleep apnea. Am I suggesting that lemons could benefit from CPAP treatment? No. I'll explain. One of the most important insights in economics comes from an economist and Nobel laureate named George Akerloff. His most famous paper dealt with a situation where consumers do not have perfect information about a product before they purchase it. George Ackerloff Akerloff's insight is that imperfect information could actually result in an outcome where prices are very low and only the lowest quality version of a product is available.  Akerloff motivated his seminal paper on this topic with an example drawn from the used car industry. Suppose there are only two types of used cars: cherries which are perfect and worth $10,000 and lemons which are only worth $2,000. Suppose that there are equal numbers of cherries and lemons but t

Haute Horology: Breaking the Law (of Demand)

In prior articles I have discussed the unorthodox role of prices in luxury watch markets. For example, since watches can serve as a highly convenient source of portable liquidity, when prices go up the liquidity benefit from a watch is greater because you can carry around more value on your wrist. This means that, at least along one dimension, buyers might be more inclined to buy a watch as prices go up. The watch market, then, serves as an exception to the prevailing notion that as a product gets more expensive people buy less of it, otherwise known as the law of demand (a law which tends to hold for almost any product). In this article I will explore additional reasons why the law of demand doesn't apply to luxury watches and, further, show that many features of the luxury watch market can be explained by nontraditional consumer behavior. Fair warning: I have steered clear of the math which we economists use to investigate markets but that will have to end here. I will r