Comments on interrelationship between scarcity, demand, price and value

Longacre

Does anyone have any comments on the relationship between scarcity, demand, price, and value? For example, some series are not as widely collected and it seems that for genuinely scarce coins, there is no underlying demand and hence the prices never seem to move or increase. Take, for example, a coin such as the 1872-S quarter eagle. The mintage is 18,000, and there is estimated to be 275 in existance. Coins in the AU-50-53 range have sold recently for approximately $550 to $850. To me that seems like a fairly low price to population ratio. There are other gold series (like Southern mintmark gold) that are more collected with similar ratios and the prices seem to be much higher.

Is it fair to say that demand always drives prices, even for coins that are truly rare? I admit that demand and prices are closely related for generic items (such as cars, refridgerators, food), but I would think that things might work a little differently in dealing with raritites. Other than "creating a market" for San Francisco gold coinage and forcing price increases, does anyone have any comments on these scarcity/price relationships?

cladking

All collectibles prices are driven primarily by demand. Obviously supply is a factor
in price but is of much less importance. Look at a coin like the '50-D nickel back in
the early '60's. Here was a common coin with some 2 1/2 million available in unc
and many coins still in circulation yet the price went up to over $100 in today's mon-
ey. Part of the reason for the ridiculous price was the fact that the coins were not
well distributed. There were perhaps a thousand people who controlled over half
the supply, but the primary reason was that people believed these were scarce and
that future collectors would clamor for them. This probably would not have occurred
even if the market hadn't collapsed with the introduction of clad coinage since 2 1/2
million is a sufficiently substantial number to prevent massive price increases. But
the belief they were scarce caused the demand. In those days recent coinage was
being set aside in huge quantities to supply the anticipated further growth in the num-
bers of collectors, so for many it was only logical to set aside some of the scarcest is-
sues in decades.

Other legitimately scarce items go begging because they simply aren't collected by
very many people. Coins like the '72-S 2 1/2 or choice 1969 quarter don't have the
collector base of buffalo nickels or Morgan dollars. Indeed, unique tokens often will
bring less than $100 at auction! These have some collector base but most token col-
lectors are unaccustomed to spending much for additions.

RYK

It's an interesting issue, that's for sure. You cannot correlate price and scarcity between different series. The "S" mint Liberty quarter eagles may be scarce, but no one cares. Chances are, no one cared fifty years ago, and chances are no one will care 50 years from now.

The Southern branch mint gold coins have scarcity, a somewhat romantic history, and stable collector base since the late 19th century. In addition, they have been promoted, and books have been written abou them. In my opinion, they will always be more valuable than the (perhaps) equally scarce San Francisco issues.

So, I would have to agree that demand is a much bigger driver of price (and value) than scarcity.

relayer

Demand is the only factor in determining value.

The value of anything is what a willing buyer pays a willing seller.

Price is a made up value usually set by the seller and doesn't reflect the true value until someone else agrees.

Scarcity only matters when there is a demand, because the price (and eventually the value) will be affected by the demand in relation to the supply.

So you can have a scarce item with a high price and little value because there is no demand.

The other (and probably most important) factor you are missing is cost.

Cost is what you give up to get something else since no one (not even Bill Gates) has unlimited resources. For example, you can spend $100 buying a coin or $100 taking your wife out to dinner, so the cost of the coin is a dinner for two (what you gave up to get the coin).

ziggy29

To use your example, there are very few date collectors of Coronet quarter eagles, so despite the relative scarcity there's VERY little demand pressure on that particular date; the net result is only a relatively modest premium over common "type coin" values.

Now if this is in a series that many people collect -- Lincoln cents, Morgan dollars, et cetera -- the date/mintmark demand pressure on this coin would be tremendous and it would likely be selling for 10-20x its actual market value.

Also, if it were an issue where there is a lot of *type* pressure because the type was made for very few years (such as Type 2 gold dollars), its market value would be worth quite more. Compare the mintages -- and availability -- of an 1854 or 1855 Type 2 gold dollar to this '72-S quarter eagle, and you'll see that the former are FAR more common and available. But because of type collection pressure, everyone pretty much has to have either an 1854 or an 1855 gold dollar, whereas they can choose any no motto quarter eagle between 1866 and 1908.

Now if collecting quarter eagles by date and mint ever take off (not likely because of the cost per piece and the fact that there are several five-figure rarities *and a six-figure rarity in better grades, 1854-S), the 1872-S will skyrocket in value. But without that reason for inducing demand, there's really little price pressure on the demand side for the coin.

Mark

Clad:

I generally agree with your comments but in this case I think it's both supply and demand that matter. Your 50-D example shows this point: When these coins were expensive (and yes, I recall buying one for $25 in 1964 dollars) you say that the demand was high AND the supply was low because it was controlled by a few people. (A fact about the supply that I didn't know but I can easily believe, especially because you have a lot of credibility with me!) Yet today the price of a 1950-D is much lower, largely because the demand has decreased AND the supply has increased. Both the decrease in demand and the increase in supply served to lower the price of the nickel.

Or, for another example, take a 1945-P FB dime and a 1940-P FB dime. Obviously the supply of the 1945-P FB dime is MUCH less than the supply of the 1940-P FB dime. I am not sure of the difference in demand. Probably the demand for a 1945-P FB dime exceeds that for a 1940-P FB dime because there is a prestige factor in owning a 1945-P FB dime. In any case, the price of a 1945-P FB dime vastly exceeds that of a 1940-P FB dime because of differences in BOTH the supply and the demand. And, changes in either supply or demand will affect the price. For instance, suppose that someone, somewhere discovers 1,000 1945-P dimes with FBs so that the supply increases by 1,000. I suspect that the price would plummet and this fall is the result of the increase in supply. Alternatively if a lot of people stopped collecting FB dimes, then the demand would decrease and I have to think that the price would fall once more. But the point is that changes in both supply and demand affect the price.

Mark

michael

only three things make up a coins price


demand demand demand


michael

Steve27

It's economics in it's simplest form, supply versus demand. Just look at the 1909-S VDB cent. Every kid who starts a cent collection, knows this coin. That's where the demand comes from. Supply for this "rare" issue is actually high, but demand is much greater, and thus the cost is high. The 1872-S quarter eagle is a much rarer coin, but demand is miniscule by comparison, and thus the cost is relatively low. I keep hearing how classic commemoratives are a great bargain, because their numbers are so low, well it's the same supply/demand story. Then there's "hype," but that's a diiferent story.

BowTieCoins

In looking at the price of modern Lincoln cent, let's say pop tops in the sixties. Price can be effected by more than just demand. While the amount of collectors for wheat cent may be greater (demand ), than memorials, demand is high for both. Yet a coin for the sixties with a top pop of less than 10 , compared to the same in the twenties brings only a fraction of the price. I belive this could be in part becuse of precieved rareity. The buyer feels more will be made, and the price will fall. At some point in the future, with more coins made near this date. If the coin in question pop does not grow, the buyer might be willing to pay more for the same reason.

cladking

<< <i>In looking at the price of modern Lincoln cent, let's say pop tops in the sixties. Price can be effected by more than just demand. While the amount of collectors for wheat cent may be greater (demand ), than memorials, demand is high for both. Yet a coin for the sixties with a top pop of less than 10 , compared to the same in the twenties brings only a fraction of the price. I belive this could be in part becuse of precieved rareity. The buyer feels more will be made, and the price will fall. At some point in the future, with more coins made near this date. If the coin in question pop does not grow, the buyer might be willing to pay more for the same reason. >>



Excellent point and there is, indeed, a psychological factor even in the pricing of
collectibles. There is also a tendency to hold off purchases altogether if there's
a perception that coins will be cheaper in the future. It was largely psychology
which drove the 1989 market. It was widely known that Wall Street was dipping
their toes in the coin market since grading companies had made grading an "exact
science" and there was no grading risk in sight unseen trading. Many collectors
and dealers loaded up on coins they were sure would soar in price and when they
did, even more were purchased. Most everyone was over extended and the de-
mand never really materialized so prices crashed.

Probably too, this can be a factor in the low prices for rare coins like the quarter
eagle; people don't feel compelled to buy it now since it will "never go up".

lava

It is about demand, and a great example are the Morgan dollars minted in Carson City. The population reports indicate that by comparison, many high grades examples are out there, but they always are in demand, and they always sell above book value. Should this be? An argument could be made that other lower population coins should trade for more, but it goes back to demand -- for whatever reason people always want more CC minted dollars.