Bike-o-nomics

In the Freakonomics Blog, Robin Goldstein reports of coming to Portland and being unable to find an inexpensive used bike. He wonders whether the demand for bikes is causing an inflation in used bike prices. He imagines that there are simply not enough used bikes to go around and thus this scarcity is causing prices to rise.

You have got to be kidding. Is it hard to import bikes to Portland?

His main problem is his limited conception of supply and demand. The used bike market in Portland is not disconnected to the new bike market so there is no real reason to expect there to be a bike shortage in Portland, nor any real difference in the equilibrium price of bikes here versus any other city. Just look around at all the bike stores in the city - supply equilibrates demand.

When Goldstein walked into a hip SE bike store and found a dearth of cheap bikes has much more to do with demand than supply. The bike store has found that nicer used bikes (that can go for thousands of dollars new) are desired by bike commuters and serious bike riders. They probably also allow the bike store a higher margin. So the store is simply responding to the demand curve of its customers. What Goldstein has encountered is a self-selection phenomenon. People who go looking for bikes in inner SE hip bike stores are not typically looking for a 1976 Schwinn Varsity. The store knows this and caters to their interests (and thus also reinforces that this is not a shop for the Varsity folks).

My favorite bike shop, Sellwood Cycle Repair, which is a nice mix of a hip cyclista shop and a down to earth neighborhood shop has a $75 used GT bike for sale and a number of other quite inexpensive used bikes on offer. I would imagine if he went further out to, say, Lents, he would find a plethora of cheap bikes.

By the way, in economics we call this error of inference a small sample bias: he has based his assertions of Portland being an expensive bike town on a tiny, non-representative sample.