Explaining the price surge of older GT3s using Market Clearing Price
In the past five years, model year 2003 of Porsche 911 GT3s seem to defy the common notion of used cars, where older generation cars will depreciate more than newer generation cars. Instead, the prices of older generation GT3s, the “996” generation, have appreciated and even have matched those of newer generation GT3s, dubbed “997”. In this case, I’d like to utilize market clearing price concepts and introduce a rudimentary model that reflects the price surge of 996 GT3s.
Potential buyers can be divided into two groups – racing car enthusiasts and car collectors. Racing car enthusiasts primarily use their GT3s for race track duties. They’re attracted to older GT3’s by their lower cost, as they see cars as consumables; however, newer GT3’s faster outright speed is equally appealing. On the other hand, car collectors prefer cars that have potential for appreciation. In this case, 996 GT3’s are more likely appreciate, as their older vintage ranks them as modern classic cars. Furthermore, collectors are usually more affluent than race car enthusiasts. Their preferences are characterized in the chart below:
|
Items |
Racers | Collectors |
| 996 GT3 | 7 |
8 |
| 997 GT3 | 7 |
5 |
Table 1. Valuation without considering unit price
In order to reflect prices before adjusted market, 996 GT3’s price has been set as 0, and 997 GT3’s price has been set to 2, as older cars of the same model is likely to be cheaper than the newer generation. After subtracting buyers’ valuations by cars’ prices, it is revealed that both collectors and racers prefer the older 996 GT3. Therefore, 996 GT3’s prices need to be adjusted to clear the market.
|
Items |
Price\Valuation | Racers | Collectors |
|
996 GT3 |
0 | 7 |
8 |
| 997 GT3 | 2 | 5 |
3 |
Table 2. Valuation with original price considered, won’t clear market
After adjusting the price of 996 GT3, we arrived at a market clearing price, where 996 GT3 and 997 GT3 are both valued at 2. This reflects real world price surge of the older GT3s to match newer GT3’s prices. Although the trend might be seemingly contradictory to the nature of used cars, concepts of market clearing price have successfully explained the anomaly associated with this outlier car model, fancied by all groups of enthusiasts alike.
|
Items |
Price\Valuation | Racers |
Collectors |
| 996 GT3 | 2 | 5 |
6 |
| 997 GT3 | 2 | 5 |
3 |
Table 3. Market Clearing Price