The Monster in the Market: Why does the Labubu Craze defy Economic Logic?

 

Ever wonder why people line up for hours at a pop-up in 2025 just to buy a small monster-like doll? Meet the Labubu. What started as a niche designer toy from Hong Kong is now a global phenomenon, with sky-high prices approaching 500% markup! To a classical economist, this behaviour seems baffling. Why pay this extreme a price for a mass-produced plushie?

 

The Labubu craze illustrates the 'Lisa effect'—where social influence can override rational economic decision-making. Standard models assume perfect information and rationality, but Labubu mania demonstrates Bounded Rationality (Herbert Simon, 1955): people rely on shortcuts and peer behaviours rather than pure logic.

 

Disproving the assumption of rationality leads to the question: What motivates a consumer to buy these products? The Lisa effect shows us that consumers are not the cold, calculating machines found in textbooks. Instead, we must look to Behavioural Economics to understand how social signals and psychological pressure override traditional assumptions of rationality.

The High Price of Victory

We’ve all heard the ‘I have the one and only 24 Karat gold Labubu…’

That might seem like just another meme video making the rounds on the internet; however, it is actually a direct reflection of irrational behaviour, with prices rising to almost 20 times their supposed value. The resale market on platforms like eBay reveals the irrationality of "bid fever." When a rare "Secret" Labubu is auctioned, we observe the ‘Winner’s Curse’, a phenomenon studied in Auction Experiments. The reason behind this Labubu craze could be broadly attributed to two factors: perceived utility and adverse selection.​

 

As Richard Thaler (1988) notes, consumers overvalue perceived utility by associating it with social signals rather than a trend's intrinsic value. The pursuit of the 'secret' Labubu intensifies this, as scarcity increases willingness to pay beyond expected utility. In high-stakes auctions, value derives less from the toy and more from the act of winning, driving prices above rational equilibrium. Over time, as trends wane and social signalling diminishes, actual satisfaction drops significantly.

Keeping Up With the Labubus

Traditional economic models depict individuals as independent, like Robinson Crusoe. The Labubu craze, however, reveals that happiness is interdependent. Behavioural economics shows purchases meet social needs, not just personal wants. When Blackpink’s Lisa shares a Labubu, it triggers an information cascade: we ignore our own judgment and follow the crowd. We can relate this to how a Dictator Game demonstrates the possession of ‘Social Preferences’ by consumers.

This herd behaviour is driven by social preferences. We get a dopamine hit from owning what others want, similar to that found in Public Goods experiments, where individuals contribute to a group not for personal profit, but to maintain social cohesion and belonging. Pop Mart masterfully uses the scarcity heuristic: our brains see rarity as value.

 

Selling blind boxes triggers loss aversion—fear of missing out on rare Labubus outweighs the costs paid. This hype makes consumers pay a premium for emotional relevance, even though the product's physical value is low. Eventually, trends cool and prices collapse.

Gambling With Blind Boxes

The “Blind Box” technique is a masterclass when exploiting uncertainty. People keep buying boxes because they really want to get the rare Secret Labubu, but you never know what you get till you open the box! So why keep buying them? The idea here could be simplified into two related concepts: Asymmetric Information and Adverse selection.

 

When buyers purchase a blind box, Pop Mart holds key information on rarity, creating Asymmetric Information—sellers know more than buyers, who face uncertainty about value and are at a disadvantage.

 

As George Akerlof (1970) described in his "Market for Lemons" theory, when one party (Pop Mart) has more information than the other (the buyer), the market becomes distorted, leading to Adverse Selection. The desperation to own the “secret” Labubu leads you to purchase many more regular Labubus, hoping that one of the boxes is your lucky break and you get the rare prize. In contrast, the truly high-value rare pieces are systematically diluted.  

 

In the blind box market, “Secret” Labubu is the ‘Peach’, while the standard version is the “Lemon”. Since consumers cannot distinguish between products inside the packaging before purchase, the "lemon" (a common Labubu) effectively crowds out the "peach" in the search process, translating consumer uncertainty into massive corporate profit.

For the company, this strategy exploits consumers' bounded rationality and risk preferences.

Hype Hangover

Coordination failure arises when the actual outcome deviates from the optimal due to producers and consumers being unable to coordinate their actions. Instead, their actions are driven by expectations of others’ behaviour, which reinforces hype and overconsumption/production.

 

As an attempt to address this failure, Popmart implemented "purchase limits" (e.g., two boxes per customer), aiming to change consumer behaviour, though often with limited success.

 

The trend eventually died as Popmart expanded its output to meet distorted demand; scalpers frantically reduced resale prices as the product was no longer scarce. As the value and social status created by scarcity decrease, consumer utility also drops.

High prices collapsed as demand fell sharply, with some even falling below their original retail price. The price correction reveals a market failure, as resources were overallocated to Labubus that only provided a short-lived level of utility. Overconsumption leads to overproduction beyond the social optimum, creating negative externalities in the form of environmental waste that is uninternalised and borne by society.

Finding Equilibrium in a World of Hype

The journey of Labubus highlights a key takeaway: in modern markets, global hype can rise and collapse quickly, driving fast-trend culture. The Labubu craze reveals how market equilibrium shifts rapidly with demand and prices, underscoring the unpredictable nature of consumer behaviour shaped by influences beyond pure logic.

 

The key lesson: the "Rational Man" model from classical economics is increasingly outdated. Instead, today's consumers are influenced by social belonging and information asymmetry. Our choices are shaped by trending behaviours and emotional needs, reminding us that market phenomena are driven by fundamentally human motivations.

 

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References

Akerlof, G. A. (1970). The Market for "Lemons": Quality Uncertainty and the Market Mechanism. The Quarterly Journal of Economics, 84(3), 488-500.

Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 263-291.

Simon, H. A. (1955). A Behavioral Model of Rational Choice. The Quarterly Journal of Economics, 69(1), 99-114.

Thaler, R. H. (1988). Anomalies: The Winner's Curse. Journal of Economic Perspectives, 2(1), 191-202.

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Yu, E. (2025). Fever to fatigue? Pop Mart welcomes the fall in Labubu resale prices. [online] CNBC. Available at: http://cnbc.com/2025/09/26/fever-to-fatigue-pop-mart-is-actually-happy-that-labubu-resale-prices-are-dropping.html [Accessed 23 Apr. 2026].

 

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