The Price of Blown Glass: Opportunity Cost and Demand Elasticity

A puzzle. My nephew has switched to making art glass full-time, and I think his work is gorgeous. His problem, though, is figuring out what price to charge. Among other things, he blows gorgeous candlesticks, which he thought of selling for $70 a pair. I say he should charge $250 a pair. He says no, because he thinks he can sell many more at the lower price.

He assumes it takes one hour of his time to blow a pair after he’s done the first pair, and incurred the fixed cost. So I guess his decision depends on the opportunity cost of his time and the elasticity of demand for his product. Clearly, there is a set of combinations of the cost of his time and the expected change in quantity sold that would make him indifferent between the high and low prices, with a higher opportunity cost requiring a higher demand elasticity if the price is lower.

Given the two prices, what is this set? And what do you think the demand elasticity actually is in this case?  (HT to SEH)

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  1. Eric M. Jones says:

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  2. Sara says:

    Well, since it’s a luxury good, might as well stick with $250 or even $2500.

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  3. Jimbo says:

    I agree with you, charge the higher price – since it takes an hour to make a pair, there’s not much benefit to producing in volume. Additionally, price is a signal to consumers that indicates quality. If there is not a lot of competition -and I assume there is not- he should try to position himself as a premium product. Does he include a unique signature somewhere on his candlesticks? Doing so would move his product from a commodity/mass-produced product image to an artisanal product image, which will allow him to charge more, and probably be happier. Dale Chihuly prices not based on volume, but on perceived quality, and that’s a great market niche to be in. If one produces based on volume, eventually you will fall into a price war with someone who has a cheaper cost structure.

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  4. Charlie Riley says:

    From the sociologist’s pov: People who have money to spend on such things will pay $250 and more for hand-blown glass. People who don’t will get candlesticks at the dollar store, if they bother with candlesticks at all. He’s shortchanging his own work AND the work of other artists if he sells his candlesticks at mass-production prices. The price shouldn’t be for his time, it’s for the skills and ability to do this work that 99.99% of people don’t have.

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  5. Gary L. says:

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  6. Warren says:

    Can he sell in two different markets at high and low prices and compare the results?

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  7. Mike B says:

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    • David says:

      You are exactly the type of person that artists don’t sell to. If you want your mass-market stuff, then shop at Wal-Mart. Art pricing is not about how much time and materials cost, it’s about exclusivity. Anyone can have a mass-market piece of art, but very few people will ever have one-of-a-kind, hand-made blown glass candlesticks.

      Besides your insulting statements about people’s lifestyles and personal choices, the items are in the luxury category. No one ‘needs’ $250 hand-blown glass candlesticks, but if they value the work and can afford, and are willing to pay for the artistry, then they aren’t going to wait for the rent to be due and prices go down.

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  8. Imad Qureshi says:

    The question is what will make the price more elastic or less elastic. Of many factors, one of the things people would be looking before paying $250 is the brand value. So brand value contributes towards price elasticity. Good brand value will make price less elastic. He can charge $250 if he is sitting in Murano island (Venice) without marketing his product as premium but in Austin, Texas or in most places in US not famous for their glass work, he needs to convince people why his product is premium and why is it worth more. This will require some marketing budget which I assume he lacks. So the price to maximize profits probably lies between his $70 and your suggested $250. But let him start with $70. See the demand of the product and then adjust the price accordingly. Unfortunately, its going to be trial and error but even Apple had to go through it (remember $600 for iPhone with two year contract).

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