Economic Theory
A 2001 study attempted to make predictions about Christmas tree prices and the relationship between tree price and tree age, which corresponds to tree height. The study was based on data obtained from the prices of Christmas trees in North Carolina during December 1997 and used a Hotelling-Faustmann model for its predictions. The results showed, in general, that the change in prices reflected a competitive equilibrium in the capital market, thus support the Hotelling rule. Among the study's results was that, "prices across age cohorts increase at the rate higher than the interest rate." The results also explained the mystery of why Christmas tree merchants do not price trees by the foot. Each foot of an older tree is more valuable than a foot of a younger tree; this is because the percentage increase in price per foot is adversely impacted by the declining growth rate as trees age.
A 1993 paper by George C. Davis and Michael K. Wohlgenant made what was, at the time, the only known estimated demand elasticities for the natural Christmas tree market. Davis and Wohlgenant concluded that the price elasticities for natural Christmas trees with respect to natural tree prices and annualized artificial tree prices were -0.674 and 0.188. The estimates incorporated survey data from 558 households in Washington, D.C., northern Virginia, southern Maryland and Philadelphia about Christmas tree display preferences. Using the results of empirical estimates derived from the survey the elasticity formula was used to arrive at the first known demand elasticity estimates ever completed for the natural Christmas tree market.
Read more about this topic: Christmas Tree Production
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