It is fair to say that Swatch's recent release of the Omega Speedmaster-inspired "MoonSwatch" is, thusfar, 2022's highwater mark for consumer interest in timepieces. A spreadsheet at ground control. When Swatch boutiques opened their stores on launch day, they were met by long lines that were reminiscent of the mobs who sought Cabbage Patch dolls during Christmas, 1983. There were even reports of scuffles. Everything sold out and we're still waiting for promised online sales to begin (if they every do).
It is hard to find fault with any aspect of this particular product launch. It's said that the role of a central bank is to take away the punchbowl when the party starts to get good. So, in that great tradition, I will spend a bit of time discussing how the product release could have been better when it came to Swatch's bottom line. I really couldn't call myself a dismal scientist if I did otherwise.
Swatch found itself in the enviable position of not having adequate MoonSwatch inventory available for the product launch. The reality of new products in the watch industry is that you just never know when a particular design is going to be a hit. Price and quantity decisions by brands are, therefore, a roll of the dice. You're either going to price too low and not have enough of a popular design in stock or price too high and your excess production will languish in display cases. It is extraordinarily unlikely that you'll get it just right.
In this case, the retail price of $260 was too low considering the number of watches available exclusively through Swatch's boutique channel. Many potential buyers were disappointed and walked away empty-handed. In addition, there were reports of professional "flippers" (more typically involved in sneaker releases and similar fashion drops) who managed to circumvent queues, obtain watches, and sell them to empty-handed devotees at a price well above retail.
When there is a shortage of this sort, a mechanism for allocating watches to particular buyers must be in place. In the case of the MoonSwatch, the allocation system amounted to lines in front of physical stores. But we've also seen approaches such as lotteries. In both cases, there are a lot of reasons to believe that people who are willing to pay the most for a watch will not get it. For economists, a person's wage is the value of their time. Suppose you are a law firm partner who bills $728 per hour (the average rate) and you really want a MoonSwatch. Standing in line for twelve hours costs you roughly $8,700. If you buy a MoonSwatch from a flipper on eBay for $4,000, instead of standing in line to get one, you end up ahead by $4,700. The person who is interested in paying the most may end up avoiding the official allocation mechanism.
This is a somewhat extreme example, but it illustrates the point that when a brand decides to sell "first come, first serve" in stores, people who place a high value on their time and / or a high value on a hype product "subcontract" with flippers who don't value the product as much (and also perhaps don't have similar hourly wages). Forums such as eBay are basically "matchmaking" these two sides during the days following a hype product launch. Sure enough, this is exactly what happened with the MoonSwatch.
Flipping creates a lot of angst for some collectors. There is a silver lining, though. All of these flipping transactions on eBay produce a whole lot of interesting data. Let's explore that data.
Four weeks after the MoonSwatch release, I went to eBay and downloaded transaction details for flipping activity. There were just over 1,550 sales of MoonSwatches over that period, or roughly 380 per week. The total value of theses transactions was $1.53 million. MoonSwatches sold on eBay were bought from Swatch for $407,000 (at the retail price of $260). Flippers pocketed approximately $1.13 million from these transactions (before fees). Arguably, that is additional income which Swatch could have earned if they had sold 1,500 watches through eBay instead of through stores.
The average price on eBay was $981 and the median was $859. The typical MoonSwatch was flipped for over 3.3 times the retail price. This average obscures some important details, though. The one month trend in MoonSwatch sales. Closer to the launch, the premium paid by buyers on eBay was at its highest level and the premium slowly fell over time. This is most clear in the graph presented here. I estimate that the MoonSwatch price on eBay decreased by $19.58 per day. At this rate, it would take just over three more weeks for the MoonSwatch price on eBay to reach the official retail price.
There are also some interesting details hidden behind the overall trends, some of these are illustrated in the table to the right.
Version
Number Sold
Average Price
Moon
428
$918
Uranus
300
$1,098
Earth
153
$838
Mercury
130
$1,099
Saturn
92
$825
Neptune
86
$1,314
Mars
84
$1,022
Pluto
70
$878
Jupiter
67
$878
Sun
63
$866
Venus
61
$909
The 11 versions of the MoonSwatch had different outcomes on eBay. The Moon MoonSwatch takes the prize for "most flipped," accounting for almost one-third of all eBay sales. Given that 11 models could have been flipped, an equal market share for each would have been roughly 9%. Clearly, the Moon design was disproportionately represented on eBay. There are many explanations, but one may be that since the Moon design is most similar to the Speedmaster, flippers may have felt most confident that they'd find a buyer for this one. It may also be the case that Swatch produced this version in greatest numbers so it also ended up on eBay in greatest numbers.
The figure here presents a visual version of the data in the table. Scatterplot of MoonSwatch eBay sales. The Uranus model takes the prize for "most valuable player" on eBay. It was available in great numbers but commanded close to the second-highest price of all designs. We will see later, though, that Uranus' higher price can be explained by the fact that it was very early to market on eBay. This, perhaps, reflects the popularity of "Tiffany" colored timepieces in the wake of the multi-million dollar auction sale of the Tiffany-dialed Patek Philippe Nautilus 5711 towards the end of 2021. Flippers have probably noted the high demand for this hue, which has also touched the Rolex Oyster Perpetual secondary market. In response, they brought the Uranus model to eBay in great numbers very early and it was bought up at a fairly high price.
Neptune receives the "rare and valuable" award on eBay. Comparatively few examples of this design were flipped. They commanded the highest price of all designs.
These results may be slightly misleading if different designs were brought to eBay at different points, since we've seen that the flipping premium varied over time (it started high and fell as time progressed). The data suggests this is the case, from a statistical perspective (I employed an OLS regression to work this out). Neptune and Mars were "first to eBay," typically arriving around 7 days from the launch. Next were Uranus and Mercury, arriving one day later, on average. Finally, Venus, Moon and Earth models typically arrived the tenth day after the launch.
After adjusting for when a particular model usually arrived on eBay, it becomes clear that some of the pricing differences are attributable to position within the hype cycle. For example, the high price of the Uranus model was largely driven by the fact that it usually arrived on eBay fairly close to the launch date. Neptune's premium was still statistically significant after controlling for the fact that it arrived quite early as well. The same is true of the Mercury model. In the case of Neptune, it seems buyers were not discouraged by subsequently confirmed reports that some examples of this model stained owners' wrists. It is also worth noting that the price "penalty" observed in the Earth model was still statistically significant even when controlling for the fact that it typically arrived when the hype was beginning to diminish.
I couldn't resist the opportunity to construct a crude MoonSwatch demand curve from the eBay data. All kinds of caveats apply to this exercise, but I found it interesting nonetheless. The graph of the demand curve is presented here. A MoonSwatch demand curve. A product's price elasticity of demand (the strength of buyers' reactions to a change in price) is a useful market characteristic to understand. For certain products, such as food staples, this elasticity is low. Buyers aren't price sensitive because they "must have" the product. We usually label any product with a price elasticity less than 1 as a "necessity." Products with a price elasticity greater than 1 are typically described as "luxuries."
I used the demand curve presented in the figure above to estimate the price elasticity of demand for the MoonSwatch. I obtained a statistically significant estimate of .36, which is evidence that buyers on eBay treat the MoonSwatch as a necessity. As many have observed, watches are literally a luxury for most people since a mobile phone is a reliable and highly accurate source of time. There is some irony in the fact that, at least according to this data, buyers may act like this luxury is a necessity.
In conclusion, data from eBay on MoonSwatch flipping provides some unique insights into the desirability of different moodels, robustness to product imperfections at launch, and buyers' overall response to a novel design. In general, this is the kind of information that can be extremely helpful in determining the price which can bring in the most revenue for a brand. It can also suggest which designs are most in demand which, in turn, can guide decisions about production volume. More widespread use of this kind of auction data has the potential to benefit both buyers and sellers in the watch market thereby serving as a "win win." It remains to be seen if we will see brands better leveraging auction data in the future.
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