The Economics of Toy Trains, and Why I Plan On Getting the VisionLine Niagara

I think if you’ve put this much thought into something, you’re going to buy it.  I put all my cars on my layout today...all..and I think I have too much crap.  And I only have 3 engines! 

I wonder what your proposed college major is... I might guess economics, marketing, law - or maybe engineering since you are so interested in the Niagara. As far as anchor prices, I paid $2,700 for my first new car, fifty years ago. Obviously, my anchor price has changed considerably since then!

MELGAR

You are 100% correct. Years ago I studied the same thing, although we didn't use the term "anchor price". I think it was in a marketing class. 

I'm 46, and my wife ribs me a lot about my opinion of the price of things. I remember my Dad doing it as well. He wouldn't pay $.50 for a candy bar. I thought that was strange. Now that I'm older, I won't pay $.75 for the same candy bar I thought was okay for $.50, and my Dad thought was okay for $.25, as an example.

An Atlas reefer should cost $50.00-$55.00. Anymore than that is too much in my mind. On the flip-side, a 36" TV for $130.00 seems like a giveaway to me, because I remember TVs costing much more. Go figure...

I'm a real joy to be around when we have to buy a new car...

I was just in a new car dealership today (for reasons other than looking at cars).

What they want for a new car is criminal.  Or at least, it should be.  As much as I paid for second house 21 years ago. 

Paul.

Harry:

Your analysis is great!

Enjoy your new locomotive!

Happy Railroading!

Stan

Harry, 

Great job! You are going to be very successful. However, your analysis is flawed in one way that you don't anticipate. Unlike old train engines that still run today, almost 100 years later, the new engines are electronic. Think about the price of a BetaMax VCR in 1984. A VC'what? you say. This was how we old folks got our high quality videos delivered to us in the past. Less that 10 years later, something called DVD came along. Now we have Hulu and YouTube. What is the BetaMax worth today? Zilch, nada. Also, that $400 iPhone? Still worth Zilch. Why? Obsolescence. My biggest worry about the new trains is whether they will still run in 10 years. Look, your VisionLine should hold its value for a few years, because it will be rare. That is another concept to consider, rarity. However, when Lionel releases the next Niagra, or when we can 3D print them ourselves, your purchase may not be the same value. When I was your age, I bought a $700 bicycle. It was top of the line. Today, it's not worth much. Why? Obsolescence.

Buy your train and enjoy, but it is not an investment. If you want to make money, buy Amazon stock.

George

Buy that Niagara and enjoy it. There are going to be allot of future expenses and college is another expense that just will not quit rising.

I fear for my kids. They are going to have to have really good jobs in the future. And once you get married your spouse is going to remind you that toys are last thing you should be buying!

I will be buying all I can afford while I am still working, key is to pay cash for it...  otherwise don't buy it. So many people live beyond their means.

My fear is I will never be able to retire... especially when the medical bills come in...

A well thought out an interesting post!

For those of us who have been in the hobby for longer, the anchor price concept also combines with other factors in our evaluations.

For me, I will propose it's "anchor quality" (I made that up, I suspect that's not a thing - but same concept).

I started around 1997.  Through my early years I was purchasing things made either currently or maybe slightly older items produced up to maybe 10 or so years before I got involved.  The level of defects I found in items during that time set up my expectations for any new items I would purchase. 

Over the years, there has of course from time to time always been an occasional item here or there that was a dog with some serious issue.  These occurrences used to be pretty rare (though there was also quite less product offered until probably around the year 2000 or so).

While statistically, the number of such products may be a similar percentage of the total product line, some of them are very visible.  The recent conversations regarding Daylight Passenger cars, Mogul engines, and a few others are pretty glaring issues.   Before those, there have been other examples that I consider somewhat extreme that stay in my memory. 

As just 2 examples without making a huge list  - 1) a smoke fluid loader accessory that was built with parts other than as designed, and the company fix was to propose the customer break the back wall out to replace the incorrect components, and 2) Some engines quite a few years ago (around 2011-2013) that were wrapped up at the factory before the paint was dry, causing the tissue paper to stick to the paint and leave marks in the finish.  While the company made some attempt to clean up the engines, I was not satisfied with the result.  These were not isolated instances, this was across pretty much every unit made for these items.

When I look at the prices, I am not just looking at the $$, I am also considering what I might get straight out of a box in terms of defects.  Recently, I see far too many cases of stuff that should never happen actually happening.

-Dave

Harry

"First of all, I am not saying that they are not expensive--they are. No one is denying that.  ---- I often hear people complain about how expensive the prices in new catalogs are. I am not saying they are not expensive, they are--this is an expensive hobby.  "  True for the newest, latest, features loaded train engines being produced.  The same can be stated for fancy $1200 washing machines, $80,000 loaded top brands of SUVs and I phones.

But used model train engines that are from the 1940 and 50s can be had for $30 to $100 or so and many consider them classic or vintage trains.  The have done much better at holding their value than all the latest tech containing trains will do as the all have planned obsolescence electronics built in.  If one will go with out the latest in model trains, the hobby can be very inexpensive.

I learned of the "guns and butter" economics.  Guns are things that tend to keep their value or much of it like houses, land, certain antiques etc.  Butter are things that lose their value or depreciate like food, cars, appliances, TVs, new model trains.  Many of them have to be bought but their costs should be minimized if you want to have more finances to spend on other things.  Some ways to do this is to by only the thing you need for the purpose, to by them used as someone else has taken much of the depreciation.

Depending on you college situation it may be that you will not have time for trains for 4 years if you take a full load, and push yourself to graduate in 4 years.  You will save maybe $20,000 verses 5 years.  Spare time will be even shorter if you have to work during school and summers to pay for school.  So school may be the time to study, plan and dream about model railroading.  And after school the train you buy today will be worth much less.

Good luck

Charlie

Choo Choo Charlie posted:

.......................  You will save maybe $20,000 verses 5 years.  Spare time will be even shorter if you have to work during school and summers to pay for school.  So school may be the time to study, plan and dream about model railroading.  And after school the train you buy today will be worth much less.............

Just to add another thought there, if one waits 4-5 years to try to start using a train, the parts needed to fix it if it has a problem may highly likely no longer be available.  Some parts aren't even available when the item is new these days.

-Dave

Harry, nice post. I think you have a bright future. 

"BULLY 4 U"

Harry's Trains posted:

I am a senior in high school, and am currently taking AP Economics. A few months ago, we read an article in class about prices, and the some of the criticism about Lionel's prices in the new catalog made me think about it again.

First of all, I am not saying that they are not expensive--they are. No one is denying that.

The article we read in class was talking about something known as "anchor prices." An anchor price is the very first price that a consumer is exposed to, and it will serve as a baseline measurement for all future prices on a similar product. This occurs subconsciously without the person even noticing. Take the iPhone for example. When the first iPhone was released in 2007, the price was $400 dollars. Now look at the iPhone 8 or X, which start at $700 and $1000, respectively. It is clear that they are more expensive now than 11 years ago. However, Apple has added many new features, which is why people upgrade their phones. The anchor price will not take into account these changes in the phones, which is why Apple must market them to justify the higher costs.

Now to the trains. I see this concept playing a huge role in this hobby. I often hear people complain about how expensive the prices in new catalogs are. I am not saying they are not expensive, they are--this is an expensive hobby. However, because I am a younger hobbyist, the current prices are normal for me, whereas someone who has been in the hobby for a longer time will see $1900 for a Niagara and pass out. Because I have not been around as long, the range of prices I have been exposed to is limited, and therefore closer to my anchor price.

There are some instances that are a bit ridiculous. For example, when Lionel released the Milwaukee Road S2 in 2011, it was $995. In 2017, with no new features besides Bluetooth, it cost $1700. As much as I love  the Milwaukee Road, that is not a good deal. However, also in 2011, Lionel released E6 Atlantic locomotives, conventionally controlled, for $550. In 2017, the E6's returned, with LEGACY, Bluetooth, and whistle steam, for $800. This price increase is justifiable due to the additional features on the later release.

To conclude on anchor prices, they affect how different people view the same price. If one person was exposed to a higher initial price, they see a bargain; if the second saw a lower initial price, they see a rip-off.

All this being said, I do plan on ordering a VisionLine Niagara, likely 6023, from Lionel. It may be an unusual purchase for someone going into college, but I have good reasons. I have worked hard for the past four years in Honors and AP courses and maintaining a higher than 4.0 GPA. I worked hard at my local Target store last summer, and plan to return this summer. I want to treat myself before I go away to college. This will more than likely be my last big train purchase for several years, at least until I land a good job and get my life going--another economic principle I've learned is that those who expect a higher income later spend more now. If I want to reward myself for all the work I've put in, and motivate myself for all the work that lies ahead of me, then a Niagara is the way I'll do it. The Niagara is full of great features that make it well worth the price--I thought it would actually be more expensive than it is. I love the water-spray and pop-off effects, and the force coupler is a really nice feature, probably the most likely of the Niagara's VisionLine features to work its way into the standard product line.

I think the economic principles I referenced here play a huge role in this hobby. Thank you for your time and happy railroading!

Very good post - well thought out - good points - very well presented - a pleasure to read - probably the BEST on the subject in many moons!  Also, a relief and nice to know there are young folks like you out there using their gray matter.  Best to you in all of your endeavors.

How about this economic scenario, take the money you plan on buying your locomotive with & invest it somewhere, let it sit until it triples lets say. Then take a third & reinvest, take another third back as your principle investment & the last third buy your locomotive.

Choo Choo Charlie posted:

Harry

"First of all, I am not saying that they are not expensive--they are. No one is denying that.  ---- I often hear people complain about how expensive the prices in new catalogs are. I am not saying they are not expensive, they are--this is an expensive hobby.  "  True for the newest, latest, features loaded train engines being produced.  The same can be stated for fancy $1200 washing machines, $80,000 loaded top brands of SUVs and I phones.

But used model train engines that are from the 1940 and 50s can be had for $30 to $100 or so and many consider them classic or vintage trains.  The have done much better at holding their value than all the latest tech containing trains will do as the all have planned obsolescence electronics built in.  If one will go with out the latest in model trains, the hobby can be very inexpensive.

I learned of the "guns and butter" economics.  Guns are things that tend to keep their value or much of it like houses, land, certain antiques etc.  Butter are things that lose their value or depreciate like food, cars, appliances, TVs, new model trains.  Many of them have to be bought but their costs should be minimized if you want to have more finances to spend on other things.  Some ways to do this is to by only the thing you need for the purpose, to by them used as someone else has taken much of the depreciation.

Depending on you college situation it may be that you will not have time for trains for 4 years if you take a full load, and push yourself to graduate in 4 years.  You will save maybe $20,000 verses 5 years.  Spare time will be even shorter if you have to work during school and summers to pay for school.  So school may be the time to study, plan and dream about model railroading.  And after school the train you buy today will be worth much less.

Good luck

Charlie

   

 

 Harry,

 My friend Charlie makes some good points here. Staying "On Track" to graduate on time is very important. Besides saving money on another year of college costs, different types of financial aid run out if you stick around too long. Maybe that is not an issue, but thought I should mention it. 

  If you can live at home and commute, that is a nice way to save several thousand dollars, typically like $12,000 to $16,000 per year. Multiply that over 4 years and that's a lot of money and maybe that much less in student loans (or more money in your parent's bank account) that you will be leaving with. 

  I do this for a living, college financial aid. Contact me off the list if you ever have questions.

  Most of my trains are from the 1939-42 period. Why can't I pay the original anchor price for them today?! 

Tom 

Rewarding yourself for all your hard work is a fine idea. Get a nice enclosed case for the engine and keep it in sight in your room to keep the dream going while working a college. 

Sounds like you might be interested in a course I used to teach called Consumer Behavior--filled with ideas like and anchor and many other "tricks" that sellers use to get folks to buy.

Best to you in the future.

EXCELLENT post.  

Thanks for your very refreshing point if view.  

All the best to you, Harry! Appears to me that you have a good future ahead. You worked hard for that locomotive, so go ahead and get it. Don't worry about its future value because if it is something you like and really want, the true value is in the pleasure it brings to you.

It's great to know there are young folks like you in this hobby today.

Great analogies from all. It's always been hard for me to shop, because I was raised by people who barely made it thru the Depression.  Pricing to me, has always been relevant. My oldest cousin bought a new Corvette in 1957, fuel inj 4 speed and don't forget "wonder Bar" Radio......He gave $2300.00 and a few dollars for it, and I bought it from him in 64, when he ordered a new split window......I gave him $800.00 for the 1957.........I saw one go for over $100,000. + dollars that had been restored to original, so like I say, it's all relevant...

Enjoy your New Niagara...!  I'd heard that it wasn't new tooling from scratch, and was a redo with all of the latest bells, whistles of the Lionel Century Club, but I don't know that, but was said either on this forum, or a magazine, I read some where...........Enjoy your engine Harry !  

Anchor price? - He didn't call it that, but Hertz wrote about the phenomena in one of his books.

As to purchasing your locomotive, I have to admit doing something similar right before I went off to college.
I made a visit to Madison Hardware (NYC) with as much cash as I could muster and bought a bunch of NOS stuff. Exactly what I do not recall.

Best wishes!

Scotie posted:

Rewarding yourself for all your hard work is a fine idea. Get a nice enclosed case for the engine and keep it in sight in your room to keep the dream going while working a college. 

..........

I hope you mean his room at home with parents. 

If living in a dorm (any dorm, I am sure), this would be a bad thing waiting to happen, no matter how careful you think you can be and/or no matter how much you might think you can control what happens with roommates (you can't).

I put together a few plastic HO models when I was in college, but they were small and not worth north of $1k if something were to happen to them.

True there are other costly items (notably a computer) that one might have in a dorm room, but the general populace is more in tune with knowing not to damage them, and there is also no novelty to a computer these days that would cause excessive curiosity.

I have to believe having an o gauge steam engine in a case in a dorm room would be a very bad thing.  If he lives at home and commutes, then no problem.

-Dave

I had a low value boxcar in my dorm room freshman year.

IMHO, there are better things to do than play with trains during the college school year.

I once heard,

“Money has no value unless used for its intended purpose”!

Go ahead and get that locomotive and good luck on your education. It’s great too see young guys fired up about the model train hobby!

Nothing wrong with buying high dollar trains while in college. I was buying brass engines at the time but I also had a full academic scholarship and a part time job to cover my costs. At graduation I had zero debt. I bought trains just because I liked them not on economics which you seemed to done.

You have used the example of the iPhone which is one of the few examples of technology that has increased in price while offering more features of dubious value. Virtually every other piece of consumer technology has come down in price while offering more like TVs and computers. 

No doubt you will enjoy this engine which is reason enough to buy it but while at college take a few philosphy courses especially the first year ones that include logic. Basing decisions on the wrong premise may eventually lead to a less desirable outcome.

BTW none of my brass engines are worth even the dollar amount I paid for them let alone cost vs inflation.

Pete

Well thought out post Harry. Many good bits of advice posted as well.

Go and buy the Niagara. You worked hard for it. Bear in mind though that you are about to amass more debt in the next 4-6 years then many prior generations did in their lifetimes. Its an unfortunate reality of the times we live in now. I work at a University and understand how much it costs to keep the doors open and the lights on.

Another bit of advice- find a job at your school that will allow you to get free or discounted tuition. Many jobs in Residential Life will cover housing or even tuition. Anything you can do to reduce your debt will be worth it many times over in the future. When I started my career 20+ years ago (in my early 30's),  I went back to school and got my degree for free. My daughter is a sophomore now, also free, and my son will follow.

To your theory of anchor prices, my In-laws paid $29,000 for their house in 1966. My wife and I bought our house two doors away in 1998 for $375,000. Now my neighbor across the street is listing his house (same model as my in-laws) for $899,000. WOW

I'm sure you will have a bright future- your GPA and background is impressive and will take you far in life.

Bob

You are a young man Harry, and in 20 years you will still be a young man. Your explanation sounds logical and you are much brighter than I at your age! You will get many years of enjoyment from that state-of-the-art Niagara, which IMHO is the finest engine with regards to looks and engineering, unfortunately near the end of steam. Whatever that engine's value will be in x number of years is irrelevant compared to the years of play value it will give. Have fun!

Rich

I support everything Harry said even though I personally wouldn't adopt the same perspective. One thing I love about this hobby is that it offers a broad spectrum and one can have fun and enjoyment regardless of where you land. If Harry wants a Vision Niagara and can afford it (without going into debt) while also affording college, go for it. Sounds like well-reasoned decision.

Harry

Your thought process is impressive for someone your age.  That being said, it is also a great example why I think someone with such a bright future should find a career other than economics.  ;-)  Economics allows you to take any choice, however rational or irrational, and create a narrative around it that sounds more substantive than what is really going on.  In plain terms, you are a young man, you work hard in school and out of school, you like O gauge trains, and you like this locomotive, so you want to buy it.  Go ahead and do so and enjoy it.  There is no need to create a justification.  For someone such as yourself who is intelligent and obviously studies hard, just remember that once you start your real job in your chosen career, begin saving immediately, do it regularly, and never touch it other than to rebalance it from time to time.  Do that and the cost of this locomotive, or any other toy train purchase, will be relatively immaterial by the time you hit your 40s and 50s.  

Good luck in school and enjoy your locomotive. 

RSJB18 posted:

Bear in mind though that you are about to amass more debt in the next 4-6 years then many prior generations did in their lifetimes. Its an unfortunate reality of the times we live in now. I work at a University and understand how much it costs to keep the doors open and the lights on.

Another bit of advice- find a job at your school that will allow you to get free or discounted tuition. Many jobs in Residential Life will cover housing or even tuition. Anything you can do to reduce your debt will be worth it many times over in the future. When I started my career 20+ years ago (in my early 30's),  I went back to school and got my degree for free. My daughter is a sophomore now, also free, and my son will follow.

I'm sure you will have a bright future- your GPA and background is impressive and will take you far in life.

Bob

Hmm, with Harry's GPA and course load of AP Econ, Harry may be able to skip the debt load of others. Get a high ACT score. Maybe he already has this. There are a good number of schools that will offer Harry a full-ride academic scholarship. I know a boy, not as smart as Harry, who got a 33 on his ACT and has a full ride scholarship at Alabama. I know some other kids getting $22K per year scholarships with lower grades than Harry. 

George

You're overthinking.  No need to rationalize.  You have the money, you worked for it, just buy the thing.

Pete

When it comes to hobbies, it's my opinion that none of these purchases make economical sense. For the hobbyist, hobby purchases are based almost entirely on emotion, it's why they are hobby expenses. Almost none of these items will appreciate in value, so they're also poor investments. Yet we buy them because they make us happy. For that reason, they're valuable from a personal standpoint.

So, set the economics aside. Would it make you happy to buy the train? Can you afford the train? If you can answer "YES" to both those questions, get it. If you can't, don't.

Wow.... the posts encouraging Harry to spend his dough are still here.
But my post, and I think several others that encourage Harry to think carefully about spending the money are gone.

Thank you all for your interest, insights, and support! 

MELGAR posted:

I wonder what your proposed college major is.

I plan on studying finance/accounting.

C W Burfle posted:

Wow.... the posts encouraging Harry to spend his dough are still here.
But my post, and I think several others that encourage Harry to think carefully about spending the money are gone.

C.W., I get where you are coming from, and I know the importance of saving. However, this train is what I've been saving for, unknowingly, for the past few years.

Increases in prices on engines I could probable understand or accept more so. More details or new options, whistle smoke, blowdown, etc.. But its the rolling stock I have the most complaint about in increase prices. Many years old, or dies bought from another manufacturer and the pricing almost doubles.

As to candy bars increase, same for cereals, it was due to a decline in sugar and shortage of same for a 2 year period in 70s. Reason Soda, candy, cereal, and anything using sugar caused prices to climb. Gasoline, the same, we were told that all oil would be depleted by the mid 90s, causing panic and gasoline prices to climb. We who worked in the industry knew better. In fact our Chairman went on the Oprah Show and touted we would run out of oil in the 90s, and thought he was a poor Comedienne, we knew better. Once the prices came up, oil flowed again.

Hi Harry

There are a few folks on this forum that want to tell you how to spend your money. You don't need to justify anything to any of them although you've done a fine job of explaining the economics. 

Buy what you like and try to enjoy the moment. As long as you have the funds without any adverse consequences to you it's a good plan. 

Like many folks here, I thought model train prices were getting out of hand.  And then I watched the Olympics Opening Ceremony Friday evening, where our US Athletes looked really sharp in their new outfits.  So after the TV coverage ended, I checked the Ralph Lauren website just for grins.  First of all, many of the Olympics clothing items were already "sold out"... which was probably a good thing.  Because I subsequently read an article that listed the MSRP for all those items... and guess what?  If you purchased a "complete outfit" of items, you would have spent a cool $6K.    That's right... $6,000 dollars, including $2,495 for the specially heated jacket, $995 for a pair of those cool gloves, and $995 for a pair of very stylish boots.  I guess you'd spend the remaining $1,500 on a sweater, a belt and a pair of pants.

Now back to toy train land... Spend just a couple of C-notes more... and you can buy FOUR Niagaras at pre-order prices from a very reputable toy train dealer.  How's that for anchor pricing???     The Ralph Lauren Olympics clothing prices make our toy train prices look like a drop in the bucket.  

David

Harry great piece of wisdom! Enjoy your Niagara! I am getting two of them. They can have it when I am gone!

C W Burfle posted:

Wow.... the posts encouraging Harry to spend his dough are still here.
But my post, and I think several others that encourage Harry to think carefully about spending the money are gone.

No posts have been deleted in this thread by the moderators....

Hi Harry

I enjoyed reading your essay on why your are going to purchase this new Lionel Locomotive.

A+ for economics research paper.

Gary