Price stickiness

Economists use the concept of “sticky prices” to describe the phenomenon where prices rise or fall slower than they should based on supply and demand, because of various kinds of reasons which I will not cite here.  It happens every day around us, and as tea drinkers, I think we are generally quite familiar with it.

One of the things that took place in the puerh market in the past few years is a sort of normalization after the euphoria of the 2004-2006 “bull” run, so to speak, in which speculation in tea reached fever pitch.  I remember the days when a jian of Menghai cakes, brand new out of the factory, can be flipped for a profit almost instantly and repeatedly.  It was the definition of a bubble — nobody was actually drinking any of this stuff, but everybody was buying and selling it.  If you were the sucker who was left holding the tea when the bubble crashed in 2007, well, sorry, too bad for you.

These days, as I peruse the selection on Taobao, I am seeing a lot of tea that I used to see for a higher or similar price back when I was in China in 06/07.  There are cakes that have remained more or less at the same price for the last four years, and in some cases, prices finally started falling for some of them.  Imagine you’ve been a big buyer during the boom, and you have tonnes of tea…. initially, you wanted to hold on to it, hoping prices will recover.  By now, however, it’s pretty clear that prices are not going to recover, so you are finally trying to offload the tea (since you are probably not going to be able to drink the 10 tonnes of tea you bought) so that you can get some cash back.  I remember predicting, at that point in time, that there will be a lot of decent, few-years-old tea that will be available for a reasonable price in the marketplace as people start to unload their collection.  I think we are finally seeing that happening.

Of course, not all of these tea are good — in fact, many of them are horrid, either due to poor storage or poor initial quality.  Selecting the right tea is key — and selecting them for the purpose that you want it for, be it further storage or immediate consumption.  I think in the next few years though, we’ll see more and more of these 5-10 years old tea hit the market and the “aged” tea prices will finally be more reasonable than they have ever been.  It’s a good time to be a tea drinker.


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