The Economics and Psychology of LEGO Collecting

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The Economics and Psychology of LEGO Collecting
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Rare, well-preserved LEGO sets can sell for thousands of dollars. Beyond mere child's play, Lego collecting has evolved into a significant economic phenomenon with a passionate following worldwide.

We're All Hooked

Over the past few decades - since the inception of LEGO sets - what started as a simple children's toy has burgeoned into a massive collecting market. You, after all, likely wouldn't even be reading this if you weren't looking to collect some sets. Millions of adults around the globe spend time, money, and energy hunting down rare sets, building intricate displays, and even investing in bricks as they would in stocks or real estate.

What's interesting about LEGO collecting is that to truly understand how LEGO ended up as a long-lasting, coveted collectible, you have to examine the relatively complex interplay behind human psychology and market dynamics. Check out this video from the Wall Street Journal that is a great primer on this phenomenon.

The Lure of Collecting

Lego's journey from a simple Danish toy company to a global phenomenon is a testament to its universal appeal. The iconic bricks have transcended cultural and age barriers, engaging children and adults in over 140 countries. According to the Lego Group's annual reports, their consistent growth reflects the toy's global appeal and versatility. The brand has become synonymous with creativity and quality, fostering a sense of nostalgia that spans generations. LEGO sets have a unique combination of qualities that make them ideal collectible products:

  • Nostalgia: For many, Lego conjures memories of childhood, offering an escape to simpler times. Studies in psychology have shown that nostalgia can significantly boost mood and create positive feelings, which are factors that drive adults to reconnect with childhood through Lego (Sedikides et al., 2015).
  • Creativity and Accomplishment: Building with Lego provides a tangible sense of accomplishment. The act of creating, whether following a set's instructions or inventing something entirely new, stimulates the brain's reward centers. A study by Gauntlett (2007) on creativity and Lego supports the idea that engaging with the bricks provides intellectual satisfaction and fosters problem-solving skills.
  • Control and Order: In a world that often feels chaotic, organizing and building with Lego offers a sense of control and order. Psychological research suggests that engaging in activities with predictable outcomes, like constructing a Lego set, can provide a comforting sense of structure and predictability (Snir & Harpaz, 2002).

These factors which, to be clear, are not necessarily unique to LEGO, do more than just make Lego appealing; they create a deep, emotional connection that transcends the act of collecting. The bricks become symbols of past joys, present creativity, and the satisfaction of completion. This emotional investment is what transforms a simple toy into a collectible and drives the market's demand.

By understanding the psychological allure behind Lego collecting, we can begin to appreciate not only the emotional but also the economic impact of these plastic bricks.

The Economics That Power It

The basic economic principle of supply and demand heavily influences the Lego market. Limited edition sets, once they're discontinued, become scarcer over time, driving up demand and prices, especially among dedicated collectors. According to a study conducted by Russia's Higher School of Economics, some Lego sets have shown an average annual return of about 11%, at times outperforming traditional investments like stocks and bonds (Rautiainen, 2020). Take a second to let that sink in. In certain scenarios, $1000 in LEGO sets might appreciate more in a year than $1000 invested in an S&P 500 ETF.

Perceived value is crucial in this scenario. The psychological factors that contribute to a collector's perceived value of a set generally go beyond the actual material worth. The rarity, complexity, and nostalgic value of a set can significantly inflate its price in the eyes of collectors. If you grew up in the 80s and 90s, you almost certainly dreamed of turning a Delorean into a time machine and, therefore, will pay more for the Back to the Future set than someone who didn't.

Collectors driven by nostalgia or the pursuit of completion are often willing to pay premium prices for sets that complete or complement their collections. Their emotional attachment, fueled by psychological factors like nostalgia and the joy of collecting, directly impacts demand and market pricing.

The explosive growth of the LEGO resale market can also directly be attributed to the rise of secondary resale platforms. The secondary market for Lego is robust, with platforms like eBay, BrickLink, and even specialized forums and conventions providing spaces for collectors to buy and sell. These platforms facilitate price setting based on demand and rarity and are key to the price discovery process over time.

Rarity, desirability, and condition are crucial in the secondary market. Discontinued sets or those with unique pieces can fetch high prices. For instance, the 'Cafe Corner' set, released in 2007, was initially priced at around $140 but has been known to sell for over $3,000 on the secondary market.

The Future of Collecting

One thing is for sure - there is no slowdown in sight for the ever-growing popularity of LEGO collecting. LEGO has established itself as a timeless brand with intergenerational appeal. Its ability to adapt and remain relevant suggests a strong future in both the toy and collectibles market.

As a cultural icon, sets representing popular franchises or historical events will continue to become significant collector's items, reflecting societal values and trends at the time of their release. This is a key point in this whole idea - popularity is driven by intergenerational appeal. What is a coveted set today will almost certainly not align with what is coveted in a decade. As younger generations grow up with LEGO and become adults with disposable income, there will be a shift in the types of sets that are most sought after, reflecting the changing tastes and nostalgic touchpoints.

As the collecting market matures, we might also see more people viewing LEGO as a legitimate investment, akin to art or antiques. This could lead to more professional trading platforms and perhaps even financial products based on Lego set values, further driving up the price in secondary markets.

It's also important to remember that the collectibles market is not immune to broader economic trends. Economic downturns or booms can and will impact disposable income and thus the amount people are willing to spend on hobbies like Lego collecting. Regardless of what the future looks like, I know I'll still be collecting regardless.

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