SDC Weekly 34; Signalling value of watches; Supply & Demand with Moser, Roth et al.; Quartz crisis revisited

MoonSnoopy, Neuralink, Pokémon with guns, McLaren, Chrono Bleu, Train heists, How to spot a liar, IVF for Rhinos and more!

What could this quote possibly have to do with watches? Do you really know what the quartz crisis was actually about? Why is LVMH using a souscription model for their Daniel Roth reissues?

Hello 👋 and welcome back to the SDC Weekly. Today, you’ll find answers to the questions posed above, and you’ll find the older editions of SDC Weekly here.

Let’s dig in.

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📶 Signalling value of watches

Fair warning: this is an unusual section… a walk down memory lane, and chock-full of opinions which you may disagree with. Oh, there’s also no real conclusion either.

This concept is something I have been acutely aware of since I was ten or eleven… but I was only able to make sense of it much later on, when I started buying relatively expensive watches. Let’s go back to the beginning…

When you’re a kid, material things are mostly meaningless unless you’re brought up in a materialistic environment which draws attention to objects with a high price tag or from a highly recognisable brand. I remember, as a child living in Zambia, we would go to Woolworths¹ in South Africa once a year during the holidays to buy clothing for the next year. This was objectively ‘cheap’ clothing but I loved and wore the sh*t out of all of it. Although I attended what most would consider ‘an expensive school’ this was the only ‘major expense’ in our household. Nobody ever cared about the clothes I wore or the labels on these clothes. It was all non-descript stuff, and while there was nothing ‘bad’ about any of it… there was nothing that stood out either.

That is, except, for one specific incident which sticks with me to this day. Our family went on holiday to the US, and I was hell bent on buying a pair of black sneakers for some reason I was not brand conscious, nor did I have anything particular in mind - just black. My brothers and I had been given a budget of $100 each, and I ended up buying a pair of Air Max Nikes for one reason only: they were the only black sneakers I liked in the store. For context, this was an ‘International School’ - the type with expat teachers and lots of students whose parents were expats… many of the kids’ parents were Ambassadors from different countries around the world, or corporate executives who worked for large western companies but were placed in Zambia to head up growth in the region. So these kids, on average, had a lot more ‘world exposure’ than just any student from a regular school.

Anyway, I got back to school after the holidays and of course, was wearing my new sneakers² in the hallway. Initially one of the senior students, who I recognised from being on the basketball team, noticed the sneakers and walked up to me to ask where I had got them. By the way… This is the equivalent of a ‘star quarterback’ in a US ‘football’ game talking to his biggest 10-year-old fan. Anyway, this had a bit of a snowball effect… remember, we’re in a school hallway, so lots of kids are roaming around, and are watching this unfold.

I just searched for a photo of a random high school hallway… this gives you an idea of the ‘busyness’ in the scene I am describing.

Eventually, there was a circle of people gathered round, asking me to lift the shoes up, to see the bottom, and get a better look at the various air bubbles and textures… honestly, this whole scene is burned into my memory, and all I can say is it must be the closest I have come to feeling what its like to be a proper celebrity. Talk about peaking early!

From then on, the bloke from the basketball team would say hello to me whenever he saw me, and I think that single ‘incident’ ended up raising my ‘cool status’ permanently in school for the duration of my stay. I still wore and enjoyed the shoes, and I even remember the moment when I ruined them permanently by stepping on a massive thorn at a safari lodge. I remember the man who helped me remove it, I remember how the air bubble was no longer firm… I remember it all. I loved those shoes, and the lessons it taught me only became clear many years later.

Much later, when we relocated to South Africa, I made friends with a guy who was the younger brother of my father’s business partner. This guy’s family was actually the wealthiest family in the whole town. I think I must have been twelve at the time, but the concepts of ‘expensive cars’ or '‘designer brands’ were completely foreign to me. This guy was maybe 17, but by virtue of being at his house all the time while my dad was visiting his business partner, we started hanging out. He took me under his wing like a little brother; we would go out on his jet skis often, attend concerts, and drive around in his sports cars. He was most famous for having an insane sound system in his favourite car, which would win awards in car magazines - the relevance of all of this was lost on me, as I was a random poor kid from Zambia who cared for nothing other than having fun.

What became obvious to me (much later) was how much he appreciated my disregard for material value. I wasn’t hanging out with him to use his stuff, or to enjoy his cars or to brag to my other friends about having done any of this stuff. I was simply hanging out, and we were enjoying the time spent together. I recall being in school, and other kids coming up to me saying “I saw you driving around with that bloke… that car is so cool… what’s it like…” - and I never understood the underlying psychology at the time.

That young me, the naïve me, was learning about a concept which all wealthy people suffer from: the impossible task of deciphering other people’s intentions when they interact with you. Ask any billionaire, and they will tell you they are typically good friends with people who knew them before they became super rich - and if they grew up rich, they either have no really close friends, or their closest friends are people they connected with in their childhood, and who they have been getting along from a time before they understood wealth at all.

Fast forward to the present, and you’re probably wondering what this has to do with watches… Please allow me one final tangent. You have probably experienced a situation when you’re at some event or location, potentially even meeting people you already know… but then someone arrives in an ultra expensive or exclusive car. This has an impact on the people who observe their arrival, because humans love to categorise people in some sort of mental hierarchy. Many may never speak of this out loud, but psychologically it is impossible not to do this - even if you never act upon the information.

In your social groups, you will have a view about exactly where you slot in the ‘group ranking’ on wealth, style, intelligence and so on. That is why, when someone who is generally perceived as a ‘clown’, blurts out some intelligent comment or genius insight… people audibly say “wow³.” Similarly, if you work in an office with ‘normal professionals’, you may never know that someone who you perceive to be your peer has a billionaire father - but one day when you’re out for a team dinner and they offer to drop you off at home in their Ferrari 812 Superfast… you’re suddenly taken aback. Why?

812 Superfast

Prior to being presented with this unexpected data (Ferrari), you assumed they were some sort of ‘equal’ when in fact they were simply miscategorised in your mental hierarchy. This sort of ‘unexpected data revelation’ causes many people to ‘course correct’ - they may treat people differently, perhaps kissing a*s a bit more, or being kinder to them or inviting them out for dinners more often. People do this because they naturally think this person may be in a position to do them a favour some day, and they want to remain in their good graces, or even improve their relationship with this person who may be ‘of use’ someday. If nothing else, they now know this person is of relative ‘importance’ (because that’s typically how society works) and so, merely being associated with this person in a favourable light is valuable in terms of social status.

This has two negative consequences. The first is that it backfires when you change your behaviour to match you ‘new’ mental hierarchy. You are literally changing yourself to accommodate no real change at all in the other person; they were always rich, and they liked you anyway - they liked how you behaved and treated them even when you did not know this fact. Thus, who you become after you find out, is not who they knew in the first place. It gets their guard up, and they start to perceive you as someone who wants something from them because that is what they are used to being treated like by others who do want something from them.

The second, is you reveal your perception of yourself, to be below them. This varies by culture, but for the most part when you observe a room full of people where there are one or two wealthy or ‘important’ people and the rest of the crowd are aligned in this view… you will notice everyone has subservient behaviour towards the wealthy or important ones. For example it may be at a buffet dinner, and a known important or rich guy will get his food and scan the room for a seat. As his eyes meet those of someone who feels subservient, they will gesture to him and ask him to take their seat. You see this sort of thing all the time. Even in something as inane as Instagram; you see people fawning in the comments on posts of people they believe to be influential or who might be ‘of use’ to them someday… strictly speaking, it costs nothing; unless you see rightfully associate a cost with openly acknowledging subservience. Has the concept of self-worth been entirely eroded over time? (See the Instagram post shared below from Jean Arnault, and review the comments to understand my point)

This brings me to watches and their value in signalling.

Whether people are willing to admit it or not, the way behavioural psychology works with watch collectors does not differ from any of the above I have described already. Again, even if people do not intend to act on any of this information, they are constantly absorbing information about collectors around them, in their own circles… all for the purposes of determining their own ‘ranking’ relative to other collectors. This is not a bad thing, in and of itself; After all, it is always good to know one’s place!

This is also the reason why you will often see people on Instagram comment on people’s watch posts to ask: “Is it yours?” They are gathering data. They will tell you it is because they wanted to confirm whether congratulations are in order… or because they weren’t aware you liked that brand or had no clue you owned said watch… whatever it is, it is ultimately data gathering. Why is this important? From an evolutionary perspective, we had tribes, and tribes had leaders. While we are not in a formal tribe anymore, “knowing one’s place” in a social context has the benefit of ensuring you don’t accidentally get yourself kicked out of the proverbial tribe. Again, from an evolutionary perspective, we are social beings and we are preprogrammed for survival - being kicked out of the tribe is a great way to reduce your odds of survival, and so, we try to ensure this does not happen!

Let me offer an extreme example - if a collector you knew tried to publicly debate John Reardon about Patek Philippe’s history, the odds are, they would lose. That is because John is a known expert in this field, and this means John’s status in a Patek debate is higher than most other people we know. Clearly then, when engaging in some sort of discourse about Patek with John (say, for example, in the comments on Instagram) you will see people rightfully show subservience - they will say “I might be mistaken but…” or “I recall XYZ but might be wrong…” - this is simply ‘insurance against being wrong’, and acknowledges John’s status in the discourse. Now in John’s case, this status is earned over many years.

Greubel Forsey Hand Made 1

However, consider another example. You see some guy at Dubai Watch Week and he’s wearing a Greubel Forsey Hand Made 1. Picture it. How does your mind categorise them? Right next to him, you see another guy wearing a Patek 5711. How do you categorise him, in comparison? The politically correct crowd will chime in here and say “Oh this is bullsh*t, you can’t judge anyone by their watches!” I agree, we should not, but that’s the point of this post - we do it anyway.

I will go ahead and predict people will automatically assume the wearer of the Greubel Forsey is a ‘serious collector’ who must have a mega collection of other watches. The same goes for many other watches, which can ‘imbue status’ (as a collector) on the wearer. It seems like sound logic to jump to these sorts of conclusions, despite the fact that this person may be nothing more than a rich person who bought a really expensive watch. Sure, they may be a highly knowledgeable collector who sought out the finest in watchmaking, but we should be careful not to confuse correlation and causation.

The notion of a watch being able to imbue status on the wearer is literally identical to the aforementioned case with the Ferrari. People see something which is commonly regarded as desirable, special, rare or expensive… and immediately go on to project their own feelings towards the object, onto the user of the object. This sort of behaviour is as prevalent as it is insane.

Watches serve as access tokens to increasingly exclusive circles of collectors. As you climb up the price brackets of watches, you also observe more exclusive circles of collector-friends. Some will say this is just a reflection of society, but the really crazy thing about watches is you can never really tell who belongs, and who is an impostor.

If there was ever a doubt, I identify as an impostor. I am just a regular bloke with a few nice watches - but have observed first hand how having ‘seriously expensive’ watches can magically unlock doors into circles I would never have known existed prior to seeing it all first hand. So if you’re considering jumping into the deep end with some 6-figure watch, don’t be surprised to find yourself in situations you could never have expected… but remember who you are, and don’t change yourself to fit in. Watches are just … stuff.

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🤡 Supply & Demand with Moser, Roth et al.

When I saw the recent Moser Streamliner Tourbillon launch, I immediately thought of this recent post about supply and demand - not because it is particularly groundbreaking insight, but because of the excellent gifs used to explain the concept. Let’s take a look…

Here we see demand rising, and as a result, prices and quantity go up:

Next, we see supply rising, and so prices go down and quantity goes up:

Then he shows demand and supply rising (combining the first two); here the quantity rises, but the resulting price can go up or down, depending on the relative changes in demand and supply:

Finally, we observe demand rising and supply falling; the price rises, but the quantity can go up or down, depending again on the relative shift in demand and supply.

In microeconomics, competition typically drives prices down to the marginal cost of production for the marginal producer. Of course, this statement triggers skepticism in any watch collector because of the observed profits among many watch producers. The thing is, these profits usually stem from pricing power or cost advantages⁴. If we assume there is “perfect competition,” we would have to observe many sellers and buyers⁵, homogeneous goods, perfect information, and free entry and exit to markets. Of course, watches are not homogenous at all - but in any other market, approaching the aforementioned conditions would quickly result in profits being pushed down towards production costs, lower market prices, increased quality, and wider variety; simply because competition would drive improvements to meet consumer demands.

Anyway, hold that thought about driving improvement and consumer demands. Shortly after the jade tourbillon dropped, we saw yet another release: the “+8” Streamliner Tourbillon of which they will make 33 pieces in two batches of 16.

Interesting to note the Robb Report article states “The first batch is already sold out” but this Time and Tide Instagram post states they are all presold. So are they pre sold, or could you still get one if you ‘know a guy’ - I’d bet the latter is more likely to be true.

Image: Jean Arnault via Instagram

Now… contrast Moser’s approach with the one Jean Arnault and La Fabrique du Temps (LFdT) have chosen to take with their Daniel Roth reissue. They are launching as a Tourbillon Souscription! The explanation provided on the website for this approach is the original, made by Daniel Roth himself, was initially financed through a souscription (subscription: pay now to fund the creation, and get it later) order of 25 pieces. In other words, they’re trying to pay tribute to the original creation they are reissuing. The thing is, when Daniel Roth did this, the funds paid upfront would actually be used to create the watches, and I suppose he would only start seeing profits after 15-20 watches were completed, as the first 15-20 would go towards covering his costs.

In the case of LFdT, ample capital is available from LVMH to actually complete all the R&D/development. Therefore, this souscription approach seems to be pandering to the nostalgia of collectors who might ‘value’ a subscription model. Given LFdT have the luxury of not actually needing the money, even if they only receive a handful of orders, they can simply fulfil those orders. I doubt they would hold off producing any until/unless all 25 are pre-sold. Yet, this is typically how the model would have worked for Daniel Roth when he did it. So was it even necessary to ‘pay tribute’ in this manner, or was this a pointless puppet show? The use of the term souscription simply feels disingenuous.

A slight tangent, again - but consider the movement. For comparison, remember Simon Brette also launched his now-celebrated watch as a souscription piece. Even to my untrained eye, the difference in finishing standards here is noticeable; I point out the interior angles for comparison - but even aside from those, the standards of this Roth reissue leave a lot to be desired. They are going to great lengths to stay ‘true’ to the original - even making it a souscription watch when it need not be - but then using a rather basic movement which does nothing to uphold the revered name they are paying tribute to. I have no idea what price this Roth reissue will launch at, but being a tourbillion it will no doubt be a lot higher than the Brette watch. Remember the supply and demand charts?

What is the point of this section, you might be wondering? I started talking about supply and demand, and then veered off into a discussion about Roth reissues and quality. This all serves as a subset of the watch market in general, and how we should be looking at the market from watch launches, pricing, available supply, and current demand.

The dizzying heights of the watch bubble have left collectors thinking more about value now than ever before. At the same time, brands have grown, increased their fixed cost base, and become accustomed to a new, higher baseline of revenue just to stay in business. This cannot possibly continue without drastic interventions. That barrage of Streamliner launches by Moser left me scratching my head; what happened to being very rare? They need not have made it limited either, just like they didn’t with the rainbow editions or the Vantablack® model. With the Roth watch, LVMH are doing what LVMH do best - churning out high end products with insane margins; except this time, they are also dressing it up as if it is a genuine independent watchmaker producing truly artisanal watches… hoping to pry the money from the purses of independent horology enthusiasts.

My view: It ain’t gonna fly. I can’t see any sensible collector shelling out 6 figures for this reissue, when you can get an original Roth tourbillon for under £50k… nor do I see those Moser Streamliners flying off the shelves as they would have you believe. As I have alluded to in recent SDCs, collectors in 2024 are increasingly focused on getting value for their money, and brands seem to be trapped in 2022-mentality where they are rapidly churning out new releases with hopes of selling out, when they should instead be tightening their belts, focusing on R&D, and finding new ways to offer genuine value.

Like death and taxes, the market forces of supply and demand will play out like clockwork, so let’s revisit this later in the year. In the meantime, what’s your take?

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Quartz Crisis revisited

Last week on Instagram, Brendan Cunningham shared his old post on the case of the “quartz crisis” fable. I had not seen his old post before, so I read it with great interest. Brandan investigates and explains some reasons for the crisis in the Swiss watch industry between 1975-1985. I thought I would share his post, along with a few other reasons for the crisis; many of which seem to be overlooked in most of the modern narrative:

1. Lack of Industrial Concentration and Inefficient Production Systems: The Swiss watch industry was (and to large extent, still is) characterised by a multitude of small and medium-sized enterprises (établissage)⁶, resulting in fragmentation and a lack of centralised coordination. This decentralised structure hindered economies of scale, innovation, and adaptability to changing market dynamics. It was, essentially, less efficient and therefore less productive.

2. Technological Shift - Quartz Revolution: This is the headline act, but as Brandan argues, is perhaps not as big a factor as some make it out to be. The emergence of quartz technology transformed the watchmaking landscape, sure; Quartz watches offered superior accuracy, reliability, and affordability compared to traditional mechanical watches. Japanese manufacturers, notably Seiko, capitalized on quartz technology, mass-producing watches at lower costs and somewhat disrupting the Swiss-dominated market.

3. Impact of Japan (and Hong Kong): Aside from the quartz technology, Japanese watchmakers (led by Seiko) introduced innovative production methods, including mass production and rationalised marketing strategies. Seiko’s emphasis on precision, quality, and efficient manufacturing processes enabled it to capture significant market share, particularly in the US and Hong Kong - this challenged the Swiss watchmakers’ dominance. Additionally, Hong Kong had emerged as a critical market for Swiss watches, serving as a gateway to Asian consumers. The problem was… Swiss watchmakers faced increasing competition from Japanese brands in Hong Kong, which eroded their market share and profitability as well.

4. Strong Swiss Franc: Brendan explains this one at length, so I wont dive into it. The strength of the Swiss franc exacerbated the industry’s challenges by making Swiss watches more expensive for international consumers. A strong currency diminished export competitiveness, dampening demand and eroding profit margins for Swiss watch companies.

5. Oil Price Shock: Another one which Brendan covers well. The global oil crisis of the 1970s triggered economic volatility and inflationary pressures, impacting consumer spending patterns worldwide. Reduced purchasing power and economic uncertainty led to decreased demand for luxury goods - which included Swiss watches - further exacerbating the industry’s downturn.

6. Fragmented Thinking: Swiss watch companies often pursued fragmented and disjointed marketing approaches, lacking brand cohesion and market positioning. Omega, for example, had more than 1600 models at one stage! The Swiss had several independent firms, and a distinct lack of corporate groups; which explains why Hayek’s moves later on were so impactful. What’s worse, while Swiss companies were known for producing high-quality mechanical watches, some companies such as Baumgartner Frères SA, ventured into the production of mass-produced low-end watches (particularly pin-lever watches being made in Hing Kong). This diversification of product offerings, catering to both high-end and low-end segments, suggests a fragmented approach to marketing and brand positioning. In contrast, Japanese competitors such as Seiko implemented cohesive marketing campaigns, leveraging brand identity, and targeting specific consumer segments effectively.

To put this crisis into context, Pierre-Yves Donzé explains in his book:

The volume of exports soared from 24.2 million watches and movements in 1950 to 40.9 million in 1960 and peaked at the historic level of 84.4 million in 1974, before falling to an annual average of 31.3 million pieces in 1982–1984. As for the number of people employed, it nosedived from almost 90,000 in 1970 to fewer than 47,000 in 1980.

He goes on to say:

This traditional image of a major crisis due to the inability of the Swiss watch industry to cope with the quartz revolution is, moreover, reinforced by the quasi-legend that has arisen with regard to Swatch and Nicolas G. Hayek, taken up by historians. According to this narrative, it was a providential man, coming from the outside, who rebooted the industry with the help of a new product that conservative manufacturers did not want to produce: a quartz watch made out of plastic. Even if there is a grain of truth in this story, it obscures an essential feature of the regained competitiveness of the Swiss watch industry: the deep restructuring of its production system. More than a product innovation, a process innovation was indeed at the heart of the lost competitiveness of the Swiss watch industry in the years of crisis between 1975 and 1985.

This basically reiterates the point which I think might be lost on many… Perhaps I don’t talk to enough people, but I don’t think I have heard anyone explore all of the above topics in any detail whatsoever, when discussing the infamous quartz crisis so hopefully this adds some useful context for you. I am tempted to do a longer post on the subject, but unsure whether this sort of historical meandering is of interest - let me know if it is.

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📌 Links of interest

🐶 Looks Like We’re Getting a MoonSnoopy. The next new moon is on February 24, so those looking to wait in line at stores should keep that date in mind.

🤑 Your Amex Centurion Card Can Now Help You Get Your Grail Watch.

📊 Swiss Watch Exports Hit Record for Third Year but as

Andy Hoffman

explains, Swiss Watch Exports Slowing After a Record Run.

🐱‍👤 Man jumps on car to stop Rolex thief in Facebook Marketplace sale gone wrong.

🧠 Listen to John Reardon dig deep on Patek Philippe. (58 min podcast)

🤡 Listen to Stephen Pulvirent discuss watch journalism. (45 min podcast)

🏎 McLaren on Materials Engineering. (9 min video)

👾 Elon Musk’s Neuralink has implanted one of its wireless chips in a human brain.

🤖 The Rise of Palworld: How ‘Pokémon With Guns’ Became an Overnight Hit.

⭐ Out of the blue: F.P. Journe and the power of independence. (French)

🏰 Rags to riches: computational analysis illustrates six core emotional arcs that dominate storytelling in Western literature.

🚂 The Great Freight-Train Heists of the 21st Century.

🎯 AI Discovers That Not Every Fingerprint Is Unique. (Thanks Paddy!)

🤥 How to spot a liar: 10 essential tells – from random laughter to copycat gestures.

🤑 Where do billionaires come from? Mom and Dad.

🦏 World's first IVF rhino pregnancy 'could save species'.

🎅 Talk like a local with this international urban dictionary. ¡Hala! Me flipo.

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End note

In case you missed it, I shared a new post on Sunday:

Agency for watch collectors

After re-reading the first section on signalling value, I realised I had omitted any academic link to social hierarchies - It is unusual for me to ignore academia, but in that case it was a more personal take on the matter; I started sharing my thoughts without looking for academia to substantiate any of it, because I was so sure of the validity in what I was thinking! That doesn’t make it true, and I am sure you will let me know if you think otherwise.

The thing is, social hierarchies vastly influence our self-perception and our perception of others. Think back to high school, where, for the most part, seniors were all on pedestals and the new kids each year were the scum of the earth.

If you consider choosing a career, the same (mis)perceptions exist too; doctors and lawyers… perhaps chartered accountants, bankers and management consultants too, are held in higher regard than other professionals - and even within each bucket, there are further hierarchies such as ‘the big 4’ accounting firms or ‘the magic circle’ law firms.

The same applies in any culture - in the broadest definition of culture, we would include company, marital, industry, or any other culture you can think of. Even if watch collecting, we have a culture, and within that, we have subcultures too.

Even among Indian women who learned to cook from their immigrant mothers, they often look down on Indian-Brits or Indian-Americans when they cook ‘Indian’ food. They simply believe these 2nd or 3rd generation Indians can’t seem to cook like ‘proper’ Indians can. Makes me laugh when I see their disdain.

As I said before, all of these hierarchies exist solely in people’s heads - there is no such thing as a universally true version of any hierarchy. As a result, when you’re part of a culture which places you towards the bottom of the hierarchy, you are at risk of internalising these external beliefs or categories. The thing is, you can’t control where others place you in their hierarchy - what you can control, is whether you accept their view as your identity or place in life.

You can choose to accept it as true for yourself, or not. You can also recognise others have placed you in a particular position in their social hierarchy while not letting this placement define how you see your own identity or worth.

“No one can make you feel inferior without your consent.”

Eleanor Roosevelt

Even when those around you consent to internalising a particular social hierarchy, nothing prevents you from rejecting it.

The choice has always been yours.

Until next time!

F

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🔮Bonus link: Why we say “OK”

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1. This was, at the time in SA, the equivalent of Marks & Spencer in the UK today .

2. There was no uniform at this school, which was awesome.

3. And I don’t mean sarcastically… they are literally ‘wowed’

4. Excluding brand perception or other similar intangibles not enjoyed by the marginal producer - because this is to make a later point about how watches are not homogenous.

5. i.e., No monopoly - a market structure where a single seller or producer assumes a dominant position in an industry or a sector; and No monopsony - a market condition in which there is only one buyer, the monopsonist.

6. I think a dedicated post on this subject is long overdue.