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In the Forum: Analog Playback
In the Thread: Audio Note new turntable and inflation
Post Subject: An effort at justificationPosted by tokyo john on: 1/3/2010

Wow, price inflation in TTs were a lot worse than I thought! (more than 400% in nominal prices in the example of Goldmund).

You are right, the prices in audio seem a riddle wrapped in a mystery within an enigma. As a manufacturer, it is almost a disgrace: Supposedly Roy Gandy of Rega said that it would cost more to make the original Linn Ittok tonearm (maybe 1000 dollars in 1980, than the Linn Ekos arm which probably cost more than 4000 just a few years ago?). In cars afterall, prices have been quite flat and content has gone up and up (cars are safer, can go faster etc). But then autos is a more competitive industry and can mean life and death in some situations.

As an investor, my job is to figure out prices, and I have to confess, part of my fascination with audio since I was in 8th grade, was apart from the sound, my fascination with the high prices. I loved to think about the kind of micro-tolerance machining and engineering that must have gone into an SME magnesium tonearm or Goldmund Reference TT (I was a lot less cynical as a child).

I tell you that investing in companies is so simple in comparison! You just have to make an educated guess about how much cash will be generated by the business over its lifetime based on its 20 year track record. Then its all about understanding human behaviour and mental discipline. But I digress.

I have also thought hard about prices for tailor made suits (6000 dollars, or 30 times more expensive than a budget suit), swiss watches which cost tens of thousands (also 30 times a timex), and European luxury cars (Tata Nano is 3k, increase the price 50% to comply with Euro safety standards, and 30 times more for an S class Mercedes). No doubt for all of these a big component of price is purely the lack of economies of scale and productivity, never mind better finish and better materials. The productivity side is basically the lack of division of labor (could be people or industrial organization), high labor costs (European or Japanese vs China or Vietnam) etc. Compared to these things, prices in audio are maybe not so out of whack; all of these low volume products need a very high price to entice entrepreneurs to provide them. Risk of failure is higher too. Then depending of the honesty of the product itself, the providers will be crooks or honest businessmen. This is maybe a generous view?

In terms of prices that people are willing to pay.....even though I was fascinated by magnesium tonearms and Micro Seiki bearings, I could never imagine paying more than 10k for a full audio system. But my exposure to suits, watches and cars have made me become more forgiving. I have also become wealthier and less price sensitive. More than that though, I have worked in many big and famous banks and also worked for myself, so I know what kind of people work in big companies and how only mediocre ideas make it up through the organization (stuff like CDOs and subprime mortgage backed securities). I can therefore say that a small team of motivated and talented individuals, who are happy to go with new ideas (which are more risky), can put out products and services that despite their high costs (much of which is due to the fact that they are a low volume business) will be more satisfying IF the buyer is not price sensitive. Unfortunately there are so many phonies, crooks and charlatans in audio (same as banks) which give even the honest entrepreneur/innovator a bad name.

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