The Law of Supply and Demand

The Law of Supply and Demand was popularised by Adam Smith in 1776.

It is the theory that prices are determined by the relationship between Supply and Demand. If the Supply of a good or service outstrips the Demand for it, prices will fall. If Demand exceeds the Supply, prices will rise. The Law of Supply and Demand is as simple to understand as Newton’s Law of Motion or that water will flow from Higher to Lower ground.

I find it interesting that the Bicycle Industry is now searching for reasons behind the current state of the Industry and that every 2nd day there is another press release on reasons for price adjustments, discounting and dramatic statements of goodwill that were missing in 2021. Not a week passes in the Industry without a CEO being replaced somewhere or a new turnaround strategy being published for a brand or business.

What is going on? Simply put, the Bicycle Industry messed with the Law of Supply and Demand.

In 2020/2021 as Demand for Bicycle Industry products surged dramatically after Covid lockdowns ended, the Suppliers of the Bicycle Industry tried to lock in the Supply side of the equation by radically increasing the lead times. A Wholesaler of Tires had to place orders in 2021 for delivery in 2023 and E bike motors had a 36-month lead time from placement of the order to supply date. These are just 2 small examples of how Supply was locked in via long-dated purchase orders or the threat of running a business with zero inventory. Multiply these 2 small examples for virtually every part required in the Bicycle Industry. Warehouses were filled to the brim for anticipated future Demand. Suppliers thought that Trees do in fact grow to the Sky and the Buyers that agreed to the lead times and minimum order quantities now face the Law of Supply and Demand and the consequences when the Supply of a good outstrips the Demand for it.

Should we believe all the press releases on pricing and statements of goodwill?

As less orders are placed with Suppliers there will again come a time when Demand exceeds Supply and then prices will once again rise, and the dramatic statements of goodwill and discounting will end. These dramatic statements and management changes of today is a short-term human nature response, what will endure is the Law of Supply and Demand. 


Blog post collage from Brandon Els Blog post entitled the law of supply and demand showing Apex, Santa Cruz and Signal bicycles.
Back to posts

Leave a comment

Please note, comments need to be approved before they are published.