Allen-Michael Richardson
Economics
ECO/561
Dr. Cristina Marine
June 6, 2015

In the holiday season of 1996 Tyco toys released the Tickle Me Elmo. The tickle Me Elmo had multiple functions that included dancing, talking, and laughing hysterically when tickled by its owner. The giggling toy coupled with the very successful brand Sesame Street became an instant success. It went on to become ranked as one of the all-time greatest toys.
Not realizing the instant success that the toy would bring for the holiday season, Tickle Me Elmo was greatly under produced. It became the most sought after item that holiday season. Every child wanted one and even some adults which was not foreseen or predicted by Tyco. It sold over one million units in 1996 at a retail price of only 28.99. The low supply and high demand resulted in mobs forming at toy stores and Walmart’s, store workers getting trampled, and the toy being sold on the black market for extremely inflated prices. The demand for the toy resulted into parents paying upwards of $1,200 for the $28.99 toy (Searcy, 1996).
Efficient markets theory states that the price of an asset reflects all relevant information that is available about the intrinsic value of an asset. In the case of Tickle Me Elmo, it may have been underpriced based on the demand that was generated. The price of the popular toy could have easily been $49.99 and been just as successful resulting in a significant increase of profits. In fact, Tyco saw a spike in its sales from $70 million to $350 million because of the toy.
Even though Tyco did not realize how successful the toy would be, they did understand that the toy would generate significant sales. They knew that Sesame Street had been the most watched children’s program on television for many years. They also knew that the Elmo character was the general favorite among children. They