For the economists in the house—do coins follow a classic supply/demand model, or is diminishing sup
Longacre
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For the record, I will be the first to admit that I don’t know too much about economics. I took two economics classes in college, and I hated every minute of them. I went to a good, old fashioned Jesuit institution, and although Father Peterson was a swell guy and a kindred spirit, he couldn’t teach economics worth a lick.
We have all heard of the classic supply and demand model. I think even I understand the basics. However, in the numismatic world, I am wondering if things work slightly differently.
In numismatics there is pretty good information about the known supply of coins, such as through population reports. I am just talking about Classic Coins™ now, rather than Moderns™ which are produced by the tens of billions each year. However, because of the population reports, we are able to track movements WITHIN a total supply, namely when certain coins jump from one grade to the next.
Does anyone know how much this diminishing sub-category of total supply affects the prices in the classic supply/demand model? In other words, how much does a jump from one grade to another impact demand, or does the fact that there is a diminishing supply in that grade level cause most of the price movements?
We have all heard of the classic supply and demand model. I think even I understand the basics. However, in the numismatic world, I am wondering if things work slightly differently.
In numismatics there is pretty good information about the known supply of coins, such as through population reports. I am just talking about Classic Coins™ now, rather than Moderns™ which are produced by the tens of billions each year. However, because of the population reports, we are able to track movements WITHIN a total supply, namely when certain coins jump from one grade to the next.
Does anyone know how much this diminishing sub-category of total supply affects the prices in the classic supply/demand model? In other words, how much does a jump from one grade to another impact demand, or does the fact that there is a diminishing supply in that grade level cause most of the price movements?
Always took candy from strangers
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
0
Comments
Likewise rather unobtainable series (like the clad type B quarters) are not in demand.
To me the more interesting questions are on the micro-side -- for example, how many whales does it take to throw the whole price structure out of whack? What are the differences between having two whales and five whales? How long do things take to stabilize if one or two whales drop out? Etc.
<< <i>I don't understand the question as asked. >>
I don't think I do either.
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
<< <i>
<< <i>I don't understand the question as asked. >>
I don't think I do either.
One more and we'll have a quorum.
Well it kindda makes sense.
While there is some efficiency in the coin market in widely traded issues, there is also hype, puffery, and slick marketing that sometimes play a role in determining the retail price for coins. When a deep pocket know-nothing buyer shows up, it can be a big pay day for certain dealers. Some dealers will be ethical and charge a similar price that they charge others. Some will have a strong temptation to "nail them to the cross," and milk them for every cent they think they can get. Because many coins are unique or nearly so, it is difficult for market efficiency to work its magic.
As I have written many times, the spread between low end wholesale price and high end retail price is often 300%. While this may seem extreme, coins do trade at those prices, depending on quality, circumstances and people involved. At true auction, the spread is often 100% from low to high for very similar coins of the same grade in the same company's holder. So while supply and demand do play a role, the knowledge level and monetary circumstances of the persons involved often play a larger role.
<< <i>I think it is all about demand. There is plenty of rare stuff which is relatively inexpensive.
<< <i>
I agree wholeheartedly. The number of collectors seem to be a bigger factor than the supply of coins. A 1916 SLQ or 1916d Mercury dime have way higher mintages and survivors than many trimes, Seated Liberty halves and quarters et cetera but cost significantly more. One can only conclude that there are fewer collectors of these other coins. Even more interesting is that the 1916 SLQ and 1916d dime are not rare in the sense you can find them at any major coin show. I don't think that is true for the latter date trimes in business strike or the three cent nickels 1884 and 1885 business strikes with mintages of 1700 and 1000 -they are rare and yet cost way less than the 16s in comparable grades.
What little insight I gleaned on this topic came to me when an ancients collector told me he had two (2) of the six (6) coins that remained in existence. I asked how much they were worth and he told me very little because no one else wanted one.
As an economist, I think that the price of coins is largely determined by supply and demand. But remember that the classic supply and demand framework there are enough buyers and sellers so that individual buyers and individual sellers cannot affect the price. For many coins I think that's correct--no one buyer or one seller will affect the price of an 1881-S MS66 dollar nor will one buyer or one seller affect the price of an MS 66 Oregon commemorative. For those coins I think the "classic" supply and demand model is definitely the way to think about the factors that affect the price. These factors include such things as people's disposable income and their preferences, which determine which series collectors "like". For really rare and expensive coins, however, I think that other considerations come to the forefront. In particular I think investment issues play a much greater role. In this case a key factor is what the buyer thinks will be the rate of price appreciation of a specific coin compared to other possible assets. But this factor also plays a role in the supply decision. Hence I think that the prices of really expensive coins should behave similarly to the prices of other, more traditional financial assets. And, contrary to a lot of what other posters assert about price cycles for assets or future huge price rises, the statistical academic work that has been done suggests that these asset prices follow a random walk with a drift, which means there are no predictable cycles and no forecastable future huge price rises.
Of course, all of these statements of my beliefs (=my guesses) are made with any sort of formal model and definitely without any econometric (=statistical) work so I think they are worth somewhat less than the approximate value of a grain of salt.
<< <i>Longacre:
As an economist, I think that the price of coins is largely determined by supply and demand. But remember that the classic supply and demand framework there are enough buyers and sellers so that individual buyers and individual sellers cannot affect the price. For many coins I think that's correct--no one buyer or one seller will affect the price of an 1881-S MS66 dollar nor will one buyer or one seller affect the price of an MS 66 Oregon commemorative. For those coins I think the "classic" supply and demand model is definitely the way to think about the factors that affect the price. These factors include such things as people's disposable income and their preferences, which determine which series collectors "like". For really rare and expensive coins, however, I think that other considerations come to the forefront. In particular I think investment issues play a much greater role. In this case a key factor is what the buyer thinks will be the rate of price appreciation of a specific coin compared to other possible assets. But this factor also plays a role in the supply decision. Hence I think that the prices of really expensive coins should behave similarly to the prices of other, more traditional financial assets. And, contrary to a lot of what other posters assert about price cycles for assets or future huge price rises, the statistical academic work that has been done suggests that these asset prices follow a random walk with a drift, which means there are no predictable cycles and no forecastable future huge price rises.
Of course, all of these statements of my beliefs (=my guesses) are made with any sort of formal model and definitely without any econometric (=statistical) work so I think they are worth somewhat less than the approximate value of a grain of salt. >>
I know I took it with a grain of salt. However, I happen to agree with your premise, although my studies in Economics ended with my undergrad studies. I just couldn't see falling asleep in yet one more pool of saliva at my desk
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<< <i>I think it is all about demand. There is plenty of rare stuff which is relatively inexpensive.
To me the more interesting questions are on the micro-side -- for example, how many whales does it take to throw the whole price structure out of whack? What are the differences between having two whales and five whales? How long do things take to stabilize if one or two whales drop out? Etc. >>
They do make and maintain a market.
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<< <i>In numismatics there is pretty good information about the known supply of coins, such as through population reports. I am just talking about Classic Coins™ now, rather than Moderns™ which are produced by the tens of billions each year. However, because of the population reports, we are able to track movements WITHIN a total supply, namely when certain coins jump from one grade to the next.
Does anyone know how much this diminishing sub-category of total supply affects the prices in the classic supply/demand model? In other words, how much does a jump from one grade to another impact demand, or does the fact that there is a diminishing supply in that grade level cause most of the price movements? >>
I don't believe any supply/demand model can be used to explain coin pricing. Although the supply is fixed, the population reports appear to be wildly skewed. Gradeflation also confuses the issue as a single coin can hold several spots in a population report (e.g. VF35 to AU50 to AU55).
I think RedTiger hit the nail on the head. Coin dealers buy coins they know they can sell and good retail dealers understand their client base and know how to price coins accordingly. In a way, the dealer only understands the supply/demand point for that coin given their current buyer base.
I think I answered your question. If this were an exam, I would follow my 2 paragraphs of BS with several fancy formulas just in case I missed the mark.
<< <i>I think RedTiger hit the nail on the head. Coin dealers buy coins they know they can sell and good retail dealers understand their client base and know how to price coins accordingly. In a way, the dealer only understands the supply/demand point for that coin given their current buyer base.
I think I answered your question. If this were an exam, I would follow my 2 paragraphs of BS with several fancy formulas just in case I missed the mark.
DeusExMachina and Longacre have now discovered exactly why I decided to get an MBA after acquiring my undergraduate degree in Economics: I couldn't stand the idea of dealing with these stupid formulas day after day!
An authorized PCGS dealer, and a contributor to the Red Book.
I vote supply/demand.
<< <i>
<< <i>I think RedTiger hit the nail on the head. Coin dealers buy coins they know they can sell and good retail dealers understand their client base and know how to price coins accordingly. In a way, the dealer only understands the supply/demand point for that coin given their current buyer base.
I think I answered your question. If this were an exam, I would follow my 2 paragraphs of BS with several fancy formulas just in case I missed the mark.
DeusExMachina and Longacre have now discovered exactly why I decided to get an MBA after acquiring my undergraduate degree in Economics: I couldn't stand the idea of dealing with these stupid formulas day after day! >>
I agree. As a tax lawyer and CPA, the only math I do is addition, subtraction, multiplication, and division.
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Certain coins are rare and have more buyers than available supply so the prices should rise until the "next buyer" isn't willing to pay "X" for "that" coin.
BUT, I think certain coins have more popularity and will get potential buyers to pay a bit more when they are offered for sale.
Grade, eye appeal and plastic (PCGS Vs. NGC Vs. ?) also play a strong role. If I offered a tarnished, dinged 1933 Double Eagle the pool of willing buyers shrinks not because they don't desire a 1933 double eagle, instead they do not want that particular coin.
Like many others though do not take my opinion with more than one grain of salt. My day job doesn't rely on economic theory.