How Can Economics Explain the High Price of a Supercar?

Introduction 

Why does a Ferrari SF90 Stradale cost over £350,000, while a high-performance Audi RS5 costs a fraction of that? At first glance, the price of a supercar may seem like a product of flashy branding or mechanical extravagance. But from an economist’s perspective, the price is a signal — one that conveys scarcity, value, and consumer desire. This blog will explore how economics, particularly microeconomic theory, behavioural economics, and market structures, can explain the high price of a supercar, using a plethora of academic literature and real-world examples. 

Scarcity and Supply Costs 

At its core, the concept of scarcity explains much of the price. Supercars are not mass-produced; models are often limited to fewer than 500 units globally. According to the basic supply and demand framework, when supply is low and demand is high, prices rise to equilibrium (Investopedia, 2023). Moreover, the cost of producing supercars is exceptionally high. Hand-assembled components, exotic materials such as carbon fibre and titanium, and precision engineering all increase marginal cost. 

Economies of scale — which usually bring prices down in mass markets — are largely absent. Each unit produced bears a high fixed and variable cost. Firms like McLaren or Bugatti do not benefit from the same cost reductions as Toyota or Ford, which spread their fixed costs over millions of units (CFO, 2023). 

Elasticity of Demand 

Despite high prices, the demand for supercars remains relatively inelastic. This means that changes in price have little effect on quantity demanded. According to economic theory, goods with inelastic demand tend to be necessities or luxury items purchased by high-income consumers, for whom the proportion of income spent is trivial (Wiser, 2023). 

In this case, Veblen goods — named after economist Thorstein Veblen (Michigan, 2022) — are relevant. These are luxury goods for which demand increases as price rises, because high prices themselves confer status. A supercar becomes a symbol of wealth and exclusivity, not just a vehicle (EpicVin, 2023). This paradoxical relationship between price and demand is rare but key to understanding luxury markets.  

Behavioural Economics and Signalling 

Supercars function as positional goods, where value is derived not from utility but from the status they signal to others (Finews, 2023). As such, their pricing often reflects conspicuous consumption. Research in behavioural economics shows that consumers do not always behave rationally; they derive satisfaction not just from product features, but from the social meaning of ownership (Paddle, 2023). 

This idea intersects with signalling theory in economics, where individuals use costly actions (like purchasing a Ferrari) to signal traits such as wealth, taste, or success. In this light, high prices are not a deterrent but a feature that enhances the good’s desirability (Finews, 2023). 

Branding and Monopolistic Competition 

The market for supercars operates under monopolistic competition — many firms offer differentiated products, and branding plays a critical role. A Lamborghini Aventador and a Porsche 911 Turbo S are not perfect substitutes. Consumers form brand attachments, and marketing reinforces emotional appeal and perceived exclusivity. 

Firms can therefore exert pricing power by creating brand-specific demand curves. Ferrari, for example, deliberately limits supply to maintain brand prestige — famously stating they will "always sell one car fewer than the market demands" (Finews, 2023). This creates artificial scarcity, a strategy supported by economic theory as a way to sustain higher prices in markets of differentiated products (EpicVin, 2023). 

Innovation, R&D and Intellectual Property 

Supercar manufacturers invest heavily in R&D to maintain performance supremacy. New models often pioneer innovations that later trickle down into consumer vehicles. From carbon ceramic brakes to hybrid turbocharging systems, supercars act as technological testbeds. This R&D cost must be recouped, often via premium pricing (Paddle, 2023). 

In addition, intellectual property rights protect design and engineering innovations, allowing firms to charge monopoly-like prices without fear of imitation — at least in the short run. This temporary market power justifies higher prices in the absence of competition (EpicVin, 2023). 

Secondary Markets and Speculation 

Another economic factor influencing price is speculation. Limited-production supercars often appreciate in value post-purchase. This fuels investment demand, where buyers purchase cars not for use but as appreciating assets. Like rare art or real estate, this increases overall demand beyond normal consumption. 

According to Altoo (2023), classic and limited-edition supercars have outperformed equities and gold over a 10-year period, turning the market into a quasi-financial asset class. This speculative demand pushes prices higher even in the primary market, as manufacturers price in future resale value. 

Conclusion 

Economics provides a rich toolkit to explain the high price of a supercar. From basic supply and demand principles and cost structures to behavioural models and speculative dynamics, each layer adds nuance. The price of a supercar is not simply a function of production costs or performance specifications. It is shaped by scarcity, brand prestige, social signalling, and market structure. Ultimately, the high price is both a reflection of and a contributor to the complex interplay of economics, psychology, and status. 

Hardik Ingale is a student at Queen Elizabeth's Grammar School and one of our five 2025 competition finalists.

Bibliography

Altoo. (2023). The rise of vintage cars as lucrative investment assets. Available at: https://altoo.io/the-rise-of-vintage-cars-as-lucrative-investment-assets/  

CFO. (2023). Why the Big Three Put Too Many Cars on the Lot. Available at: https://www.cfo.com/news/why-the-big-three-put-too-many-cars-on-the-lot/667556/  

EpicVin. (2023). What Makes Luxury Car Brands So Costly? Available at: https://epicvin.com/blog/what-makes-luxury-car-brands-so-costly  

Finews. (2023). Ferrari Becomes Europe’s Most Valuable Carmaker: The Economics of Scarcity. Available at: https://www.finews.com/news/english-news/66487-ferrari-most-valuable-car-maker-europe-wall-street-journal-benedetto-vigna-enzo-ferrari-porsche-mclaren-aston-martin#:~:text=The%20Economics%20of%20Scarcity  

Michigan Journal of Economics, 2022. Veblen goods: Why sports cars and diamonds don’t obey the law of demand. [online] Available at: https://sites.lsa.umich.edu/mje/2022/01/10/veblen-goods-why-sports-cars-and-diamonds-dont-obey-the-law-of-demand/  

Investopedia. (2023). Scarcity Principle. Available at: https://www.investopedia.com/terms/s/scarcity-principle.asp  

Paddle. (2023). Premium Pricing: What It Is & How to Use It. Available at: https://www.paddle.com/blog/premium-pricing  

Wiser. (2023). What Are Inelastic Products and How Do They Impact Pricing Strategy? Available at: https://blog.wiser.com/what-are-inelastic-products-and-how-do-they-impact-pricing-strategy/