Econ in the News: the Great American Solar Eclipse

On August 21st, a lucky swath of the United States will experience a total eclipse for the first time in nearly a century, and the entire mainland will get to see a decent partial eclipse. That adds up to 300 million people who are potentially in the market for solar eclipse glasses. With an Amazon-induced supply shock and a little behavioral economic theory, we have a wonderful real-life example of dramatic market fluctuations to explore.

nasa_eclipse_map
The path of totality for the upcoming solar eclipse, along with a gradient for partial eclipse viewing.

Because the solar eclipse is a known event, manufacturers have spent the past few months ramping up production to meet anticipated demand and cash in on the eclipse. American Paper Optics, one of the largest and most reputable companies that produce eclipse glasses, reported at the end of July that it had produced 37 million glasses, with more on the way. This supply-side increase in quantity was also augmented with a rightward shift in the supply curve, as many new companies jumped into the market for eclipse glasses (or, more generally, sun viewing glasses – the glasses are safe to use during a normal day). By roughly modeling this as Stackelberg competition, it follows that very large and certified companies (like American Paper Optics) increased their supply, but took into consideration the other suppliers would also be entering the market.

The big issue on the supply side came as Amazon announced that many of the eclipse glasses being sold on its site were not safe for use, leading to a massive leftward shift in the supply curve as non-certified suppliers essentially had their products removed from the market. Although major players have been trying to increase production even more, short-run decisions mean that there are limited changes to resources a company can implement in a month, imposing constraints on how many more glasses they can feasibly make.

On the demand side, an interesting lens to look at is the behavioral idea of soph and naif consumers with time inconsistent preferences. A naive consumer (naif) is one who doesn’t realize that they will irrationally be time inconsistent in preferences – deciding today that they’ll do something tomorrow, but putting that action off another day once tomorrow arrives. I hypothesize that naifs are driving a lot of last-minute demand for eclipse glasses because they kept putting off the decision to purchase eclipse glasses. A sophisticated consumer (soph) consumer, on the other hand, is one who is knows what decisions they will make in the future for some action, and thus seeks to choose the time to execute a decision that maximizes their utility. However, the soph also knows that he will put off the decision when the optimal time comes, and is thus time inconsistent in preferences. Under a commonly-used quasihyperbolic discounting model, and assuming that a soph could impose some condition that would force him to buy glasses at the right time (perhaps by having another person give a strict reminder to buy glasses), a soph would likely have bought eclipse glasses sometime in July (if not earlier), anticipating that last-minute demand from naifs would drive up prices.

The combination of a sharp increase in demand before this American eclipse, another demand shock from naif consumers looking for last-minute eclipse glasses, a rightward supply shift from more companies entering into the market, and a severe leftward shift when many glasses were pulled out of the market last-minute by Amazon that was exacerbated by the Stackelberg competition equilibrium all theoretically lead to dramatically elevated prices right before the eclipse relative to prices beforehand. This is exactly what we see nowadays.

I lack precise data from Amazon on the prices of eclipse glasses before many of them were culled from the market, but anecdotally I saw a variety of bundles averaging $1-2 per pair of glasses. If one bought direct from American Paper Optics, as I did for a marketing strategy I designed for my internship this summer, glasses were about $.90/pair for 100 glasses or less, and $.70/pair for larger quantities. Two days before the eclipse, American Paper Optics has now cut its offerings to one 50-pack bundle of assorted designs for $4/pair – an over 300% increase, and likely a strategy to ensure fast shipping (pre-packaging bundles of 50 and waiting for an order to come in). On Amazon, a 10-pack bundle now ranges from $80-$150 – up to 1400% more expensive than a month ago!

While a lot of people are scrambling to find legitimate solar eclipse glasses before Monday, earlier market intervention (Amazon banning fake glasses before it became a widespread issue) and more economic knowledge (it’s a lot easier to become a sophisticated consumer if you understand time inconsistent preferences) could have resolved the issues at hand. Regardless of the economic lessons to be learned, I’m sure that hundreds of millions of people across the United States will enjoy the spectacular syzygy on August 21st!

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