The Market Has No Idea

[Osage]

Originally Posted by fazool

So the word "market" is very imprecise. I think of the word market to mean a pool of potential buyers and one that will pay the price.

So, lets say I am selling a car for $10000. There is a pool of 25 buyers. No one find the car worth that much to them, so they won't pay that price. There is one buyer who will pay $10000 because the car is worth that much to them. So, they pay what the car is worth to them and the seller (me) gets the $10000 because that was the car's worth or value.

Now, another person sells the same car but the pool of 24 remaining buyers already decided no one wants to pay $10000 so he next higher paying buyer sets the value because that's what the seller can get for it.

It's much more complicated that than because the pools are huge populations and dynamics like desirability change values every moment.

In addition you can get into un-spoken bidding wars which will drive the price up and then you have supply and demand influences exacerbating this effect.

Basically, the bottom line is value and worth are only defined by what someone is willing to pay for something.

Say I have a sentimental trinket I would pay $5000 to have. No one else would pay more that $2 for it. Well I could probably buy it for $3 but it's worth more to ME than that. Conversely when I go to sell that thing, I view it as worth $5000 to me, but no one else will pay more than $2 so I feel insulted by them.


It's all about the single point transaction - what someone is willing to pay at the moment. And what it's worth to them.

This is a really good simple explanation. I'll add a few things that might help.

With this hypothetical car that you just sold. Let's say the new buyer waits a year and then decides to sell it and in that year a blockbuster movie came out and the lead actor was driving the exact car, all of the sudden the potential buyer pool of 25 people just jumped to 75 people and of those 75 people, there a a handful that are willing to go up to $13,000. In this situation, the market has shifted and the new owner has done well. In contrast, lets say there is a recall or other issue with the car model over that year and the new owner put 20,000 more miles on it. The potential buyer pool had dropped from 25 to 15 and no one is willing to pay more than $6500 for the car. This is all the market. Supply and demand.

Cars aren't a great analog to guitars but you get the idea. With the $2,200 Keith Hamblin guitar that the original poster is talking about, the exact same thing could happen. Lets say that Dave Rawlings drops his Epiphone and starts playing a Keith Hamblin. You better believe that the demand will go up and that $2,200 will seem like a steal. Conversely, lets say that a 10 more of them show up for sale tomorrow, there will be at least one motivated seller who's willing to take half that and suddenly $2,200 doesn't seem great at all. Again, supply and demand.

[RP]

The first few Pet Rocks, Cabbage Patch Kid dolls and any other new but not yet catchy products had little to no value when they hit the scene. However, this soon changed and demand went crazy as did their worth. So one would say that the market went from zero to sixty (or above) in a very short period of time. However, to some or many, these products continued to have no worth. So, if some place a high value/worth on a product and some place no value or worth on a product, who dictates its market value????

[mcduffnw]

Originally Posted by fazool

Yes completely.

"worth" is, by definition, what someone is willing to pay for something at that time.

If the market is willing to spend $10000, then an item is worth $10,000
If the market is only will to spend $100, then the item is worth $100

Worth is how much it sells for, not how much you like it.

To add to your absolutely correct statement^

A famous little line from Mr. Warren Buffet:

"Price is what you pay...Value is what you get"

Although...I think in truth it would really be correct to say that "Value is what you PERCEIVE you get", since we all perceive things like value differently


duff
"Be a Player...Not a Polisher"

[djg]

Originally Posted by RP

Maybe it's just my ignorance as to business and economics, but I'm having a hard time understanding this concept of "market." It's being presented as a unified, almost single voice, but that seems unlikely in my mind. I own a revoiced Taylor 714 and 814 which I dearly love. I was fortunate to find one languishing for several years in a store online and the other was a special order. Since both lack the requisite cutaway and electronics, I would posit that "the market" would put less value on them than I did. By the same token, I'm sure that there are others out there who would put value on these particular guitars because of what they lack i.e. factory electronics and cutaway. Is "the market" simply a pseudonym for the majority of people??? Surely THE MARKET doesn't speak for everybody - clearly it doesn't speak for me....

No, the market doesn't necessarily speak for you at all, although it probably constrains your choices. And "the market" isn't necessarily a well-defined, stable, or uniform thing. There's you, an individual, and there's some larger population (of which you might be a member) and, in either case, there might be some variation or uncertainty about value or willingness to pay. Or not.

And now I'll go on a bit. Terms (words or phrases) like value, fair value, fair market value, market valuation, market price, asking price -- well, I'll take a stab at some but not all; if you're not interested in a pedantic ramble, do yourself a favor and stop reading this post.

Value -- that is, value for a given buyer, you or me. For you or me -- advertised prices (or known "street" prices, or recently reported sale prices -- different things, at least potentially) might well influence one's own personal valuation of a guitar (or anything else), but you have your own preferences, budget constraints,and context and so do I; and a fair, good, or excellent price -- in market terms -- might seem a bargain or not -- cheap, fair, meh, or a rip-off to any given buyer.

From my economic value to my willingness to pay: Most of us are price-takers -- sure, we might haggle sometimes and look for a relative bargain other times (or not) but we don't determine how the larger market values a guitar. We buy one or we don't. I own guitars from several builders or manufacturers, but not one of those sources ever calls me personally to ask me how to price an instrument. For a given guitar, we might even walk away from things that we personally consider bargains -- I might jump at one of something at a given price and then have no interest at all in a second one at a significantly lower price. Or I might think that some guitar or other represents very good value for money and yet not want one myself. YMMV.

Economic value is the value some particular buyer attaches to something. It's commonly cashed out in dollars (or some currency), although it needn't be. One thing that's handy about a monetary valuation is that it can mesh with what's called revealed preference -- even if the person is me, I might not know my willingness to pay or reserve price (the price at which I'll actually be willing to buy a given thing under a given set of conditions) until I actually pay for something.

Market valuation is an estimate or prediction what $ value the market will attach to something (let's say a guitar) at some time; and it might be made with greater or lesser precision or certainty, depending on all sorts of things.

Asking price is asking price (what some person or firm asks) -- and it might or might not be the price at which the seller is willing to sell. A seller's "reserve price" is the lowest price at which a seller is actually willing to sell; a buyer's reserve price is the highest price at which a buyer is actually willing to buy. A buyer or seller might know his, her, or its reserve price with precision or . . . more-or-less or not-at-all.

Market value or fair market value is sort of the flip side to your own personal valuation. It's what a larger population or market is willing to pay; and it doesn't much care about your own personal preferences or mine (unless you are a very big buyer or you're operating in a very small market). This # might be more-or-less objective and more-or-less stable -- ranging from a uniform and stable price to . . . it depends. What's the market or larger population of potential buyers if some items are sold internationally, some nationally, and some locally, with different potential buyers placing different personal values not just on a given model guitar but, say, on a particular example of a particular model? And, then, perhaps, different values on buying locally or by mail, subject to different terms (e.g., can it be returned, after some period of time or other, with or without some penalty), subject to different assurances. If some monster were to steal or destroy my favorite guitar, I might be keen to find another and happy to consider used . . . but how much more or less would I (or anybody else) pay for some particular example of the same model? There's the question whether I can try before I buy, the question whether I have a right of return, the question whether I'm dealing with a dealer or other seller with whom I have some familiarity, first-hand or second-hand, etc., etc. So that sounds like it's just me, but take lots of folks, think of them as a market, and try to assess aggregate or average demand for any given item. Price some particular thing at 10, 15, or 25% below a well-researched market price or FMV (look in a blue book, ask George Gruhn, or what have you) and the thing might sell in an instant or . . . even if advertised by a known seller, might languish unsold for an extended period of time.

Maybe that's more than enough.

[RP]

I really appreciate those of you who took the time to explain the concept of market valuation...

[TubeG]

The value for $99 AMPs and $5000 AMPs are the same depends on who purchase it and use it. It all depends on your definition of value.

[Pitar]

You can ask what you will for a product on the market. How it responds is how you steer it. Hence the elixir con man's shills he places in the audience hawking his cure-all as the genuine article. People respond to the shills (marketing) and not to the con man (product).

On these forums are innumerable shills hawking the various guitars they own or have played and give credibility to. Do we know these shills or the guitars? Yes and no. We know them as forum members and the guitars through simple exposure to their known existence. But, do we trust these members with the responsibility of caring which guitars we should spend our money on? Yes? Well, okay, do as you will. No? Wiser choice. But, they are not the bellwether for our individual preferences despite the very fact that they are trying to influence them by their shilling, even with such innocent methods as stating their opinions. Are they all of such remarkable talent that judgement of their preferences should not be held in question? Yes? How is that evidenced, then?

The innocent opinion (hawking) of guitar quality is never accompanied with support evidence of the talent behind the opinion giver to give it credibility. On the open market asking for a certain price for a particular product, in this case guitar, should not bring with it a reaction that is not directly related to the marketing effort behind it, or, the evidence. Again, its the shill people are buying first and the product second.

[Mr. Jelly]

I pretty much agree with the OP.

If someone had a real expensive diamond and wanted to sell it to a room full of guys like me (the market if you will) at a low price they'd be SOL.

[van6143]

Originally Posted by arwhite

The market always knows what something is worth. You might not agree with it, but by definition it knows.

I would agree with that.

[AHill]

AGF is the market for Mr. Hamblin. Therefore, the market has exactly an idea of what his guitars are worth. It's a buyer's market right now.

[guitar george]

If you hope to get a lot, you have to ask a lot. You can always come down in price. Most negotiations do not involve increasing the price above the asking price.
if you list it too low and there's a buyer, it is usually too late to increase the price unless you get cold feet and decide not to sell for what you were asking.
This is particularly true when selling real estate. Start high, you can always come down in price.

[Goodallboy]

Originally Posted by Mr. Jelly

I pretty much agree with the OP.

If someone had a real expensive diamond and wanted to sell it to a room full of guys like me (the market if you will) at a low price they'd be SOL.

The market isn't "a room full of guys". C'mon.

[RP]

Originally Posted by Goodallboy

The market isn't "a room full of guys". C'mon.

Darn! Just when I thought that I had this market thing figured out....

[Cypress Knee]

Originally Posted by Goodallboy

The market isn't "a room full of guys". C'mon.

Actually, the market is a room full of guys. It is a very specific target market, and it is very much the wrong target market, and the buyer will be lucky to make a sale at the asking price. Now if the market is a room full of wealthy women who appreciate fine jewelry, the target market has changed and the market price is more likely to be in line with the seller's price.

CK

[Goodallboy]

Originally Posted by Cypress Knee

Actually, the market is a room full of guys. It is a very specific target market, and it is very much the wrong target market, and the buyer will be lucky to make a sale at the asking price. Now if the market is a room full of wealthy women who appreciate fine jewelry, the target market has changed and the market price is more likely to be in line with the seller's price.

CK

Identify this "rom full of guys". Since they're in a room, that shouldn't be hard to do. How many can it be? Is it 10 guys? Is it a small room or resort hotel conference room?

The market is the entire guitar (since that's what we generally discuss) buying public, not a "room full of guys".

One person's opinion that "it is very much the wrong target market, and the buyer will be lucky to make a sale at the asking price", is simply a biased opinion and has little to do with what the market will bear.

The examples of a selective groups of people, such as "wealthy women who appreciate jewelry", is not relevant to the overall jewelry market.

These types of examples aren't productive in accomplishing an instructive environment for those that might be trying to understand more complex issues than just another subjective opinion.

There's plenty of room for that in capo/tuner discussions. This is economics 101.