The economics of Lego (investment markets in everything)

by on February 7, 2013 at 1:30 pm in Data Source, Games | Permalink

Here is one excerpt from a lengthy and data-intensive post, which likely offers more than you ever would wish to know:

The internet can be blamed for the size and scope of the secondary LEGO market. On the website, BrickLink, you can find almost any set that LEGO has ever produced. In addition, the site keeps records of trends in the market and value of individual pieces. This site is invaluable to a LEGO collector and has given many the ability to grow their collections. Before the advent of this site and sites like eBay, collecting LEGO required going to garage sales. There are now whole sites dedicated to buying LEGO as an investment, but that is a topic for another article.

This creation and expansion of the secondary market in conjunction with LEGO now marketing some of their products to an older audience has made the prices of some old sets increase exponentially.  On the extreme range, there is the UCS Millennium Falcon that is selling new for upwards of $2,000 (and close to $1,500 USED!). It sold for $500 new in 2007. Even non-licensed sets can run a premium, such as the Cafe Corner that was one of the original modular buildings. It was $150 new and now it can sell for over $1,000.

For pointers I thank Michael Rosenwald and Kevin Won.

Bill February 7, 2013 at 1:49 pm

Proof that the Great Stagnation is over and that innovation in a system component changes the value of the system and complements.

If you look at the pricing of Lego sets and Lego pieces, just as pieces, you are missing a “part” of the storey. That part is the computer module and computer software that now enables you to make movable products.

This is also illustrative of how the introduction of one type of improvement–here, a computer module and software–changed the value of complements, Lego blocks and other components of the system.

I know. I bought a grandson a $250 computer programmed motor kit, and had to go out and purchase more Lego blocks.

Bill February 7, 2013 at 1:51 pm

To prove this assertion, ask yourself: what is the price appreciation of tinker toys or log cabin construction sets relative to Lego pieces.

Will February 7, 2013 at 6:06 pm

But once the nostalgia-fueled Baby Boomers who are obviously driving this market get old and sell out, won’t the market crash? Is this innovation simply fueling a bubble?

FE February 7, 2013 at 2:05 pm

Sometimes posters here are too quick to ask, “What about 3-D printing?” But I will not be putting little bits of plastic in my investment plan.

Dan Weber February 7, 2013 at 3:06 pm

Are you saying that 3D printers will put Lego out of business?

I really doubt you can make them cheaper on a marginal basis than Lego can. It’s possible that you may be able to match their precision.

Finch February 7, 2013 at 3:20 pm

It would be fun to see a Lego robot that could construct a working copy of itself from Lego parts.

Nathaniel February 7, 2013 at 8:51 pm
FE February 7, 2013 at 3:27 pm

No, but printing could kill the secondary market for rare, “out of print” bricks unless people are willing to pay a premium for authentic Lego plastic. As yet we do not have law enforcement resources invested in “counterfeit” Lego crackdowns, but perhaps that will change.

Bill February 7, 2013 at 3:30 pm

There is probably IP protection on the Lego block design, so a Lego robot might go after you if you infringe their design.

Dan Weber February 7, 2013 at 4:19 pm

Lego is no longer protected by patents against other people making compatible blocks. The quality control isn’t as good, but if you really want them, here’s a partial list: http://en.wikipedia.org/wiki/Lego_clone

Bill February 7, 2013 at 4:34 pm

Thanks Dan. Good work. Looks like the courts said it was patent law and not copyright which governed and the patent expired. That also means that the kits must be valued for sentimental reasons and not functional ones, in that one could create a kit independent of the patent.

I wonder what kit an economist would give his kids.

FE February 7, 2013 at 5:58 pm

As a child I was forced to play with a non-compatible clone called Brix Blox, which seems to have been a Sears-licensed version of Loc Blocs. Wikipedia accurately says, “The result was that children who owned the much cheaper Loc Blocs were often excluded from group play with other children who owned the more popular Lego bricks.” Patent law ruined my childhood.

JWatts February 7, 2013 at 4:29 pm

” Are you saying that 3D printers will put Lego out of business?

I really doubt you can make them cheaper on a marginal basis than Lego can”

It doesn’t matter if I can make them cheaper than Lego does. IWhat matters is if I can make them cheaper (marginally) than I can buy them for at retail.

Dan Weber February 7, 2013 at 4:32 pm
Sigivald February 7, 2013 at 4:39 pm

Certainly none of the 3d printed output I’ve seen can really compare with a LEGO in terms of finish… but maybe better printers or processes can do it, or will soon*.

I agree that you’re unlikely to be able to do better than LEGO can on price – though it will be interesting to see people fab up custom parts that LEGO doesn’t make.

But that really counts as value added to the LEGO system, not a replacement…

(* See here; ““For the moment only the most high end and expensive 3d printers would be up to the task of printing custom Lego pieces that match the quality of the real thing. I’ve found that the accuracy, tolerances, and material properties of real Lego bricks are extremely finely balanced, so my 3-D print is just that tiny bit off, enough to be annoying.”, from 2012.)

C February 7, 2013 at 2:43 pm

Moral of the story: the internet and brick and mortars are substitutes, but the internet and bricks are complements.

TheAJ February 7, 2013 at 2:58 pm

Hmm, a possible bubble?

Last year, I ran an e-bay search on some of my best ($100+; 500+ pc) sets, mostly the train sets, pirate ships, and the more sophisticated Model Team and Technic sets. All of them were reselling at a discount, and especially large discount once you factor in inflation.

Now I see that the train set is selling for 2x on average . . used!

Bill February 7, 2013 at 3:39 pm

That’s a good question and hidden within it is another question: did the internet reduce the price of Lego pieces (more than it otherwise would have been, even given the rise of motorized uses for Legos), in that you once had your childhood Lego pieces sit in your attic and would have no efficient way of selling them, and now you can sell them on the internet. You could think of Lego as a capital goods producer facing competition from its used equipment.

Perhaps, to prevent itself from competing with used sets in the future, Lego will rent rather than sell Lego sets.

You never know.

Dan Weber February 7, 2013 at 4:31 pm

Most Legos are incredibly fungible. You can dump them at a Goodwill and they will find their way into another use.

Bill February 7, 2013 at 4:38 pm

It’s always the case that you can give things away for free if they have no value to you, but you have to be motivated to go to the attic. The question is: did the internet create a market for used Lego pieces that would not otherwise have existed, and did it fuel both demand and release additonal supply.

Dismalist February 7, 2013 at 6:26 pm

The market for used model railroads has long been well organized, on a completely decentralized basis. The internet has made that market more efficient, I wager.

Yes, Bill: The main main competitor to an existing company is the installed customer base. Surely true with us ancient model rail fans!

praxis22 February 8, 2013 at 4:08 am

You’d think there would be a market for people to build cloned sets. At $2000 a pop a Millenium Falcon is a box of brics and a set of instructions.

Copy the instructions, source the brics manually, and then sell the package at a discount to the same thing with a box.

Profit! :)

spandrell February 8, 2013 at 4:44 am

Rent seeking by hoarding child toys. Ain’t it grand?

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