The Law of One Price, and why Supre is relevant

As you can tell by the title of this post, it's going to be a random walk through topics as I think them up. It's ok. We'll both live with it.

Every weekend, for the last little while, my parents have driven up to Omaha. This is because the beach house is currently being painted, and they want to inspect the progress weekly. Since my exams finished, I too have been dragged up with them each weekend, to look at the beach house. It's very boring; an awkward car ride during which my mother and I have to stay quiet because my father will have some American on the phone (it's still Friday there), and then we get out of the car, and I am forced to make some comment on how great the house looks, even though I can hardly tell the difference between the colour of the house where it has been painted and where it has not.

Last weekend, I decided not to go. I had a birthday party to go to, and I needed to buy the present. When my mother came into my room to wake me up to go, and I told her that I wasn't, she was quite shocked. This amused me, as it was as if she thought I enjoyed it each week. But this is a digression. Anyway, instead of going to Omaha, I decided to take a trip to Newmarket. In particular, I was looking for what I call 'commodity fashion items'. These are generic items like black cardigans, white tank tops, denim cutoff shorts (apparently these are out of fashion now, alas), white plimsols and so on. Just the basic items that everyone has in their wardrobe, and which are sold by pretty much every shop.

In economics, there is an important concept, which has recently (according to some) been debunked. This idea is the Law of One Price. This states that in efficient markets, all identical goods must have only one price. Supposedly, an example of where this did not apply was when Royal Dutch/Shell shares did not price according to the way they had agreed to divide their future profits (60-40).

I think a more obvious example that the Law of One Price does not apply is the Broadway shopping strip. Take, for example, the garden variety acid wash denim skirt:

Price at Glassons: $29.99

Price at Cotton On: $30

Price at Supre: $55

Does anything there stand out to you? In fact, the Supre skirt probably wasn't even real denim. So next time you hear someone complain that "Supre has such high prices for its crap quality" (an oft-heard complaint), tell them that it's more than that. In pricing its products above other similar products, Supre dares to violate the very foundations of the market pricing system that we live by.

Your friends will think you're really smart. Or insane. But when you think about it, the two aren't mutually exclusive. Draw the Venn diagram.