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Hot Topic: It’s All In the Bag!

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That’s a trick question because what’s really interesting are the similarities. You already know – or you’re not surprised to find out – that you need about $250,000 to get a Ferrari or a Harvard education these days, but did you know getting the “it” handbag, made by Hermès of France, can set you back just as much? Yes, really. (If you were a rich, well-known, influential woman – or the boyfriend or husband of a rich, well-known, influential woman, you’d know.)

The Birkin bag pictured here goes for $60,000, in the mid-range of the Hermès line that tops out in Ferrari price territory.  That’s right:  4 Birkin plain old, squarish handbags = 1 Harvard Diploma, raising the question of what people are buying besides a purse, a car, or a diploma when they buy from Hermès, Ferrari, or Harvard.  

The short answer is that what’s “in the bag” includes status and prestige for the buyer and a valuable sprinkling of market power for the seller. 

In the Bag! uses the economic way of thinking to investigate luxury markets, focusing on how firms like Hermès, Ferrari, and many elite universities use the market power they’ve developed through branding, advertising, and reputation to keep prices high by restricting quantity supplied.  As students learn about the cat-and-mouse game of “baggin’ a Birkin”, compare acceptance rates at various colleges, and read about the output planning of Ferrari, they will gain a deeper understanding of the incentives and rules of the game in luxury markets.

InTheBagIntro&ERPslides It’s All In The Bag!  (Students)

It’s All In The Bag!  (Teacher Guide)

The FTE thanks Caroline Parrish (Hebron High School, Carrollton, TX) and Karen Yancy (Joshua High School, Cleburn, TX)  for the idea, design, and original draft of this Hot Topic. Their lesson was edited, with permission, and any errors are the responsibility of FTE staff, not the authors.  (Questions or comments?  Please contact kratte@fte.org.)

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