The Economics of Pokemon Card Pricing

If you have a child, or you yourself (like me) are a grown person with long ties to the Pokemon franchise, news starting around COVID may have caught your eye. You may feel dismay at seeing people buy a Charizard card that you beat up go for millions of dollars. This may be many a reader, given that the Pokemon Company is the largest media franchise in the world. For more Pokemon data, you may want to see this resource: Pokémon gaming - Statistics & Facts | Statista, and to track the value of your own cards, you may want to check eBay’s Price Guide.

The fundamental question for the reader should be: what drives the prices of the cards? While some may argue that Pokemon cards are more valuable because Pokemon itself is a monopoly, or that the game is played by more people (it could be argued that more people play Magic the Gathering more seriously), economics tells us that price is determined by supply and demand factors.

With supply being exogenous to our discussion, given that we cannot control the amount of cards The Pokemon Company is producing (increasingly more). Demand has primary determinants that can explain the sharp increase in prices we’ve seen in the last few years. Pokemon Card prices can be fully determined by buyers’ income increase in recent years, preferences for mint cards no longer being printed, and expectations of continued price increases stemming from high profile cases with large sums of money being exchanged.

Income Increase:

As income increases, economic theory tells us that consumers will increase consumption of normal goods. The charts below show us that Pokemon cards are a normal good, but one could have hypothesized this even earlier since cards, like much of the entertainment industry, are a luxury good that only those with disposable income can afford. Pokemon card prices were in the news shortly after the COVID-19 Pandemic started in early 2020. From the below chart of the original base set Charizard (ungraded), the peak price came in March of 2020. This was around the same time disposable income had its first peak funded by stimulus checks meant to keep up consumption, the primary driver of the economy. 

It wasn’t just older Pokemon cards that were demanded either: new sets including Hidden Fates (produced in late 2019) and XY Evolutions (produced in 2016, a reprint of the original base set for the 20^th anniversary) were also heavily demanded. So much so, that some retailers stopped selling the cards altogether in order to stop people from fighting over the cards. This began the most recent craze, but preferences for mint graded cards continued the frenzy.

Preference for Mint Cards:

For card collectors, whether sports cards or trading cards, preferences are more aimed at the cards in the best condition. This may be why, after seeing cards you used to play with go for thousands of dollars, you may have been disappointed to find out your card that went through the wash three times and was bent to fit into your wallet was not worth as much. One of the primary ways that collectors ensure cards are in mint condition is grading them through a service such as PSA or Beckett. These services became more popular in recent years, so the foresight to send cards that were recently ripped from packs 25 years ago caused the supply of mint cards from older sets to decline. In other words, since the supply of mint cards are significantly low, this puts upward pressure on prices.

This is also the reason that people found out, to their dismay, that opening new packs and sending cards in that are in high supply already would not be worth nearly as much. Regardless, PSA and other services were forced to increase their own prices for grading services amidst a surge in grading requests. With that increase in cost, the supply of mint cards decreased even more, again putting upward pressure on prices.[1] This did not stop consumers from sending cards into the services, especially after high-profile celebrities began grading and selling cards, altering the future expectations of consumers.

Expectation of Future Price Increases:

The most famous event in recent Pokemon history was Logan Paul’s opening of a brand new Base Set Booster Box he bought for $3.5 million. It was one of the most watched videos on YouTube at the time, mostly garnering laughs since the box he bought turned out to be fake and filled with G.I. Joe cards. Logan Paul has a wide reach with 23.6 million subscribers on YouTube, and that video saw more than 6.9 million views on his video where he explains how he was scammed. 

Celebrities with a wide reach garnered attention from viewers looking for ways to make future income, and Pokemon is seen as a good investment. Future expected price increases raise demand for the product now, again pushing demand up such that current prices increase. 

The determinants of price discussed are not only determinants for Pokemon cards or even entertainment goods. Any good or service is determined by supply and demand factors, and part of understanding how to set prices for maximized profit is to understand these determinants. It is advisable for small businesses to spend time studying their own market and understanding business methods that can help increase demand for your good.

[1] From the supply and demand graph at the top of the article, think of a decrease in supply as a shift of the supply curve to the left. Recall that the equilibrium price of whichever good you are studying will then increase.