A Small Peek into Big B’s Car Collections...

Ref. No.: ME0010

A Small Peek into Big B’s Car Collections:

Does Law of Diminishing Marginal Utility Hold Good?

International automobile giants like Toyota, Ford, Chevrolet, Mercedes, Suzuki and Hyundai
have carved a niche for themselves in the Indian market. The plausible success factor of these foreign
players in the Indian four-wheeler market is the widespread research of the consumer behaviour. All
aspects of the behaviour pattern of the Indian consumer across all socio-economic strata, regions and
towns are extensively studied. These include lifestyle, personal tastes and preferences, receptiveness
for an effective product, credit availability, income growth, exposure to media, etc.

Utility and Rationality

People demand goods because the latter satisfy the wants of the former. A car manufacturer, like
any other firm operates in order to create something for the satisfaction of some wants. An automobile
company produces car to serve as a safe and comfortable means of commutation. Car has utility for
people who desire to have a car. While a person staying near the office place does not show much
desire to own a car, one residing away from the work place has much more desire to possess one.
The 2008 four-wheeler Total Satisfaction Survey by TNS Automotive, a comprehensive automotive
study in India covers over 45 models with evaluation of consumer behaviour in key areas of sales
satisfaction, product quality, vehicle performance and design, after-sales service, brand image and
cost of ownership. The Total Consumer Satisfaction (TCS) index provides a measure of satisfaction
the consumers derives from a model (Annexure I). The high scores of small and low-priced cars
reflect its traditional dominant position. The consumers have given a score of 95 on a scale of 100 to
Maruti Alto. In the premium mid- size segment, Skoda Octavia (Petrol variant) has been rated the
best, scoring 100 out of 100.
Utility derived by different people from these cars depends on their taste and preferences. Some
consumers love to have Hyundai i10, some gun for Maruti Wagon R while others may prefer Maruti

This case study was written by Nitu Gupta under the guidance of Akshaya Kumar Jena, IBSCDC, Hyderabad. It is intended to be used
as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case
was compiled from published sources.

© 2009, IBSCDC.
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever
without the permission of the copyright owner.

Background Reading: Chapter 5, “Demand and Consumer Behavior”,

Economics (Paul A. Samuelson and William D. Nordhaus)

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 A Small Peek into Big B’s Car Collections...

Zen Estilo. However, comparison of utility across consumers is not appropriate, as utility is a personal
and subjective concept.
Establishing a brand in the market requires adapting to the consumer’s tastes and preferences.
Identifying a consumer’s want and corresponding to these factors has become the prerequisite of the
firms for ensuring that their product would be receptive. Rich people buy flashy cars to project an image
of success and status. Consumers seek to imitate whom they admire and may buy the same brands.
Thus, car manufacturers choose famous personalities as their brand ambassadors. Hyundai had the
tennis star Sania Mirza, the latest teen sensation of India to promote their Hyundai Getz vehicle.
The consumer is at an advantage due to competition. There are wide varieties of goods and
services at his disposal and thus he tends to choose those which he values most. Given the budget
constraints, the consumer intends to rationally allocate scarce resources among alternatives in order to
satisfy his wants. A perfectly informed, rational consumer faces a range of price-quality combinations.
He chooses a combination that would give the preferred level of quality at the lowest price or vice
versa. Consumers do not make their decisions in a vacuum. A rational consumer is characteristically a
prudent human being who makes detailed enquiries about the reasonableness of the price, quality,
safety, after-sales service, etc., before choosing a service or a product. ‘Consumer is rational’, he or
she can be relied on to act in their own best interests. This is the core assumption of modern economics.
Freakonomics, by Stephen D. Levitt and Stephen J. Dubner, is all about justifying the apparent
irrational behaviour. It proves that consumers are indeed acting in their own best interests.

Exhibit I
Amitabh Bachchan’s Car Details
Car Prices*(INR)
Rolls Royce Phantom 35,000,000
Bentley Continental GT 16,500,000
Mercedes S350 7,784,849
BMW 7 Series 7,360,000
Porsche Cayman S 5,000,000
Range Rover 3,922,500
Mercedes E Class 3,793,399
Lexus LX470 1,955,000
Ford Mondeo 1,492,000
Mercedes SL500 1,300,000
*Prices are approximate figures
Compiled by author from: http://www.carwale.com/research/?_kk=car%20india%20new&_kt=5e715b6b-36db-4d1e-8d09-
2d88d187699b&gclid=CMmqjrO7k5oCFYItpAoduSv1MQ and http://www.autoweek.com/apps/pbcs.dll/
cce?Category=Land_Rover&types=LAND%20ROVER&Module=2

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 A Small Peek into Big B’s Car Collections...

Law of Diminishing Marginal Utility

Whether or not the car collections by the Indian movie legend Amitabh Bachchan (Big B) is an
instance of acting on one’s own best interests, has buzzed many a minds. The Big B has one of the
best collections of cars in India.(Exhibit I) He has at least 11 cars; a Rolls Royce Phantom, a Bentley
Continental GT, a Mercedes SL500, a Porsche Cayman S, a Range Rover, a Lexus LX470, a
Mercedes E 240, a BMW X5a, BMW 7 Series, a Mercedes S320 and a Ford Mondeo.1
Celebrities command high degree of public and media attention. It is obvious that people indulge
themselves in discussions about their life, background, etc. Big B’s fascination for cars also could not
escape the public eye. Two students of Economics, Aryan and Helen were caught in a discussion
about Big B’s car collection. Having read the principle of diminishing marginal utility recently, their
discussion was imbued with a sprinkling of their understanding of the principle.
Aryan: Wow, that’s great! Big B has such a fabulous collection of cars.
Helen: Yeah; may be, I would also have a collection of my own once I start getting a huge pay
cheque.
(No response from Aryan)
Helen: Eh, why aren’t you responding? What are you lost in?
Aryan: I am into a small dilemma and am trying to figure out what is it that I am missing.
Helen: Why don’t you tell me? May be I can help you.
Aryan: See, we learnt in the last economics class that Marginal Utility (MU) is the increase in Total
Utility (TU) caused by additional unit of the commodity. Marginal utility of a good diminishes as an
individual consumes more units of it. The extra satisfaction, which he derives from an extra unit of
the good goes on falling. The consumer, being rational is not expected to consume a good if he derives
negative utility from a good or if the price he/she pays is greater than the utility he/she receives.
However, Big B’s possession of cars does not seem to gel with this rational behaviour of the consumer.
Helen: Yeah, you are right. Even after possessing the first few cars, he has not stopped adding
more to his collection.
Aryan: Should this behaviour of his be treated as an exception to the law of diminishing marginal
utility?
Helen: I heard that the first two cars, Rolls Royce & Bentley are gifted ones. Is that the reason
why he seems unaffected by the law?
Aryan: That’s fine. There may not be any clarity about the ownership about a couple of them but
what about the rest?
Helen: Right, you seem to have a point.

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Sanskriti R., “Unplugged: Amitabh Bachchan”, http://timesofindia.indiatimes.com/People/Unplugged-Amitabh-Bachchan/articleshow/
4141217.cms, April 4th 2009

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 A Small Peek into Big B’s Car Collections...

(Both remained silent for some time and decided to think over it and discuss their viewpoints next
day. Next day when they were in their group, Helen came running to Aryan to resolve his dilemma.)
Helen: Aryan, I cracked the problem.
Aryan: So have you confirmed that Big B’s is a case of paradox?
Helen: No. Though you have understood the law well, you have missed one of the most important
assumptions of this law. All the units of consumption should be identical. This means that the nature
of the product should remain the same. If units of consumption differ in their characteristics, this law
would not be applicable. All the cars Big B owns are of different varieties. They differ in their looks as
well as their features and specifications. They differ with respect to engine strength, maximum power,
maximum torque, suspension system, steering, and brake system, interiors and exteriors and in functional
requirement.
Aryan: Good. That’s right. It is great that you know a lot about the cars. By the way, I could
remember another assumption that might not apply to Big B’s possession of cars. He might not have
purchased all the cars in one go.
Thus, both of them drew self-satisfaction from this analysis about Big B’s cars and the resolution
of the apparent deviation from the law of diminishing marginal utility.

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 A Small Peek into Big B’s Car Collections...

Annexure I
Total Customer Satisfaction Rankings Four-wheeler (2008)

Source: “2008 four- wheeler Total Customer Satisfaction (TCS) study”, http://www.tnsglobal.com/_assets/files/
TNS_Market_Research_2008_TCS_Press_Release.pdf, December 31st 2008