When it comes to price elasticity of demand, luxury cars are less elastic than mass-produced cars. We often see ads for sales events for mass-produced vehicles, but rarely for high-end cars like Bentley, Ferrari or Rolls Royce. This is because if a good or service has elastic demand, the total revenues of sellers will increase through decreasing prices, while if a good or service has inelastic demand, lower prices or sales will have the reverse impact. Luxury items are very elastic compared to essentials, as consumers can switch purchases to substitute items when the price of the good increases.
Demand for private cars can be elastic or inelastic in Singapore depending on the type of private car and income group. Mid-size luxury sedans offer consumers a good combination of quality components and craftsmanship, luxury amenities and great power for the daily commute. This may be due to income differentials between consumers of luxury cars and mass-produced cars, but it is also due to some factors not related to price. Therefore, the increase in demand for mid-range cars and therefore the increase in consumer spending is likely to be lower compared to high-end cars.
For low-income people, private cars are likely to be a luxury, and therefore demand is likely to be income elastic. There are many substitutes for private cars in Singapore, including private car hire services, taxi services, bus services and train services. The proportion of income spent on private cars is large in Singapore, as private cars are expensive mainly due to the high cost of a Certificate of Law (COE) and the high Additional Registration Fee (ARF). On the other hand, luxury car buyers won't worry about gas prices because they can afford it, and more importantly, the factors that influence their buying decisions are mostly non-financial.
Luxury goods such as cars can be attractive because discrimination is practiced according to the quality or model of the product. Some luxury car buyers may have private jets, but jets are better suited for long-distance travel.
