Instruments of Desire

One of my students Sam Landman has spotted a niche market proving resilient in the face of mounting macroeconomic difficulties.

Sam writes:

As many people are holding back on putting deposits down on houses, and putting off buying a new car, one market is increasing solid - namely the musical instrument industry. This is largely due to the fact that many people hold onto their precious instruments for at least 15-20 years (with stradivarius violins being kept for much longer averaging 55 years), whereas with houses, people move house on average 5-7 years, whilst the use of a car is a low with an average of 3.5 years before a replacement vehicle is sought.

In terms of microeconomic theory - the rising price of musical instruments is perhaps caused by a low supply of top quality instruments, as the turn around of 12 years per instrument causes a constriction of supply of old hand-made instruments. This scarcity of supply combined with a highly inelastic demand curve (as people buy an instrument for sound and quality not price) can result in a high pricing for an instrument. What we are now seeing is a contraction in the number of older instruments made available for sale, as people weather the storm in order to sell their instrument in better times, which forces an inward shift of the supply curve, and higher prices.

Picking up on Sam’s comments. Might the market demand for instruments actually rise during an economic downturn? Buying an instrument for a family member or a friend can be a catalyst to a life-long affinity with learning and playing it, and at times of economic stress, buying an instrument is not only a decent investment in the long run but a great way of relieving some of the pressures of modern life.

And the huge success of music-themed video games must be having an effect on demand. A report in the Times today says that the popularity of active music titles such as Guitar Hero and Rock Band have prompted up to 2.5 million children to learn the instruments for real.

With parents plucking up the courage to buy guitars for their children. And with sales of traditional orchestral instruments doing well - here is an industry increasingly out of tune with the rest of the economy.