The Price of a Pooch.
“Pandemic Puppies” have become a thing. As people stuck at home want some company and we know that our furry friends are good for our wellbeing, the demand for dogs has soared and, correspondingly, so has the price of a pooch:
According to Petsathome, “Cocker spaniels saw the highest year-on-year inflation (184%) followed by Jack Russells (180%), cockapoos (168%) and border collies (163%).”
Economics helps us to understand these surging dog prices. The demand for a good is a function of four factors: its price; the income of the consumer; the prices of other goods (substitutes and compliments); and the tastes and preferences of consumers. In the case of dogs, several factors lie behind the increase in demand. Disposable incomes for many have increased as they save money on their daily commute and lunchtime sandwiches. The prices of substitutes to dog walking like trips to the gym or swimming pool have not so much risen as become unavailable. Above all people are feeling that they want a dog right now in a way they did not before. With everyone walking around the local roads and parks, a dog seems an ideal way to have a richer walking experience and a motive to get exercising. And now people working from home, a dog can be cared for in ways not possible when people faced the daily commute. Of course, a lot of people just feel lonely. The result has been that at any given price, people are demanding more dogs than before. We say the Demand Curve has shifted outwards (in the below diagram from D1 to D2). When Demand increases like this, price is very likely to increase too. But by how much? This depends on how easily it is to increase the supply of a product in response to a rise in its price. Economists call the responsiveness of supply to a change in price Elasticity of Supply. Now the short run elasticity of supply of puppies is going to be rather low. Breeding new dogs takes a little bit of time so as demand rises from D1 to D2, sellers must sell puppies from existing stock — but they are unlikely to have much stock. Supply is relatively inelastic — that is, in the short run, it is relatively unresponsive to the rise in price. Whilst suppliers would like to sell more dogs, they simply do not have sufficient stock. So, in the diagram below, as demand increases from D1 to D2, the price increases significantly from P1 to P2, as the supply line is relatively steep.
This is in contrast to a product that is readily available. If a firm has stocks from which it can draw or the product is relatively easy to manufacture, then the supply line would be much flatter — elastic — and thus as demand increases, we can see that supply can increase too (Q1 to Q3 below), and price does not increase quite so much:
Dogs that are most in demand will see their prices rise the fastest — not only will their demand curves shift further to the right, but, being specialist pedigree breeds, their supply lines will probably be more inelastic.
Of course now that prices have increased significantly, there’s every incentive for dog breeders to breed more pups. If this is the case, plans will be in place now to breed more and maybe to import more dogs too. In a few months we may well see prices crash as a glut of pets becomes available. The Supply line will shift to the right — and prices will fall. Let’s see if this happens.
For now, the significant increase in the value of a pet has made your pooch such a commodity that there has been a 170% increase in dog theft. This is because the thief can sell the dog at a high price. Police have warned owners not to leave their pets unattended or post about them on social media. Even Lady Gaga has suffered from dog theft and offered a $500,000 reward to anyone who can return her French Bulldogs. Such a significant reward demonstrates the dogs’ value, provides a good incentive to return the dogs — but also incentivises further theft as these creatures are seemingly so worth having.