Barbie, lemons, and economics

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Wayne Crews and I have a fun piece up at RealClearMarkets that ties together the Barbie movie, the vintage toy market, and Nobel economist George Akerlof’s famous article ”The Market for ‘Lemons.’” The Barbie movie’s popularity has increased interest in the market for Barbie and other toys, such as Hot Wheels (invented by Barbie creator Ruth Handler’s husband). But there are a lot of lemons in the toy market, which has caused some problems.

Collectors most value toys that are still in their original packaging. Unmodified toys still in good condition are the second-most valuable category. But tome sneaky sellers are putting restoration jobs and fakes on the market, and passing them off as originals. Because it can be hard to tell genuine originals from fakes:

Some markets have asymmetric information. This means that the customer knows less than the seller does about the quality of, say, a car (in Akerlof’s telling, real cars, not Mattel). That uncertainty means customers are less willing to pay full price for something that might turn out to be a lemon. The less trust consumers have, the less they’re willing to pay.

Often, they are only willing to pay the average price when they cannot distinguish a sub-par from high quality offering. The problem is that that’s great for lemon sellers—or in our case, sneaky resto hawkers of die cast Hot Wheels or vintage Barbies; but it punishes authentic sellers, who have a hard time finding buyers willing to pay full price for authentic goods. In many cases, authentic sellers won’t bother selling at all, which makes it harder for consumers to find collectables they seek. Lemon-related price declines decrease the supply of authentic vintage toys.

Read the whole thing here.