June 16, 2019

The demand for yellow cars

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There is a strange car which has been parked outside my door for the last two days. I know it is the same car. It is a yellow car and there are not so many around.

When my children were younger, they would play a game on journeys to see who would spot the first yellow car. Whole journeys would go by in studied silence and concentration with no such phenomenon spotted (younger parents take note).

So why so few yellow cars? It is true that yellow is not everybody’s favourite colour, in some studies as few as 3% of people said it was their favourite.

But 3% is still a lot more than the number of new yellow cars (only 0.4%) sold between January and November last year in the UK.

(And before I get swamped with complaints that colour preferences are a matter of gender, culture, circumstances and product  – I know, I know, but bear with me a minute).

Why so few yellow? If you are one of the 3% yellow doters, why not drive your idiosyncratic tastes with pride (but please don’t leave it parked in front of my house).

The answer lies at least in part in resale value. You might like a yellow car but when the time comes to put it on the second hand market you are going to face potential buyers like me who envisage themselves driving a yellow car, then being pointed out by carloads of kids screaming; “yellow car … yellow car!!!”; then shuddering, and asking the salesman “do you have the same in blue?”

The demand for many products is not just a reflection of individual preferences – your demand may be influenced by what you think the demand from others for the same product will be, and yellow cars are no exception.

It is the same phenomena with the demand for oil discussed in the Oil Price Watch Overview.  If you think that everyone else is going to demand more oil in the future, then you would be wise to demand oil now before the price goes up – which of course will help to push the price up now.

It is the same with the Eurozone debt crisis. You may think that Italy is a good bet to pay back their debts, but if everyone else thinks they may not be and help push the yields on Italian Government bonds to 7.5% (today), what many analysts think is close to bailout or default territory – well you would be forgiven for letting your demand for Italian bonds be influenced by others demand for the same product.

But coming back to yellow cars.  At least Henry Ford made the choice simpler with his famous diktat:”you can have a Model T Ford in any colour, as long as it is black”

Image on Flickr courtesy of the Brain Toad

Except there is no convincing evidence that he actually said that, and indeed Model T Fords were sold in many colours to begin with, including red. But as for a yellow Model T Ford? Well, I’ll believe that when I see it.