The Economics of Everyday Things: Episode 93 – Pearls

Released May 26, 2025 | Host: Zachary Crockett | Produced by Freakonomics Network

Introduction

In Episode 93 of The Economics of Everyday Things, host Zachary Crockett delves into the intricate world of pearls—exploring their journey from ocean depths to elegant adornments. This episode uncovers the economic dynamics of pearl cultivation, the challenges faced by pearl farmers, and the entrepreneurial ventures that bring these gems to consumers.

The Accidental Entrepreneur: Jeremy Shepherd’s Pearl Journey

The episode begins with the compelling story of Jeremy Shepherd, a former flight attendant whose serendipitous purchase of pearls ignited a successful business career.

Jeremy Shepherd [01:13]: "I went to buy a strand of pearls for my girlfriend back home. Long story short, the pearls were appraised at about $600 and I think I had paid about $25 for it."

Shepherd’s initial investment was modest, but recognizing an opportunity, he reinvested and expanded his pearl acquisitions dramatically.

Jeremy Shepherd [01:55]: "I cashed my paycheck, I went to the bank, I took all the cash I could out of my credit cards... I went home with about $3,000 of pearls in my bag."

Selling these pearls on eBay more than doubled his investment, marking the beginning of PearlParadise.com, Shepherd’s online pearl retail empire.

Jeremy Shepherd [14:42]: "We have tens of thousands of strands, possibly a million pearls. We've got a vault in Los Angeles that's 1300 cubic feet and it's completely filled with pearls."

Today, PearlParadise.com generates substantial revenue by offering a vast selection of pearls directly to consumers, minimizing traditional jewelry store markups.

Jeremy Shepherd [15:30]: "The lowest markup we go is right around 15%. It depends on the product."

Understanding the Pearl Market

The global pearl market exceeds $10 billion annually, with a steady rise in demand. Shepherd emphasizes the importance of luster in determining a pearl's value—a factor that hinges on the oyster’s health.

Jeremy Shepherd [04:29]: "The most important factor is always going to be luster. If all factors are equal, size determines the value. But luster is really that inner glow that gives pearls their beauty."

Unlike diamonds or sapphires, pearls are organic gemstones formed by living organisms, primarily oysters. The surface luster of a pearl results from microscopic crystalline layers that reflect light, enhancing its aesthetic appeal.

The Art and Science of Pearl Farming

James Brown, owner of Cygnet Bay Pearl Farm in Western Australia, provides an insider’s perspective on the complexities of pearl cultivation.

James Brown [05:22]: "We've been running and operating for 79 years."

The pearl formation process begins when an oyster secretes nacre around an irritant. However, natural pearls are exceedingly rare—with estimates suggesting one natural pearl per 10,000 oysters.

James Brown [05:53]: "You'll be lucky to get one natural pearl out of every 10,000 pearl oysters."

To address this scarcity, the industry shifted towards cultured pearls thanks to Kokichi Mikimoto’s pioneering techniques in the early 20th century. Today, cultured pearls dominate the market, yet producing flawless specimens remains a challenge.

James Brown [06:55]: "There are so few perfect pearls, probably like somewhere in the order of four or five perfect round pearls in every thousand pearls that you actually harvest."

Cultivating quality pearls involves meticulous seeding, where desirable characteristics from superior oysters are grafted into host oysters to encourage pearl growth. This method enhances the chances of achieving consistent quality and size.

James Brown [07:59]: "We take one oyster that has all of the characteristics of the color and lustre on its shell that we want our pearls to have... create that cultured pearl."

Despite advancements, environmental factors such as climate change, typhoons, and marine diseases pose significant threats to pearl farms, complicating the cultivation process and affecting supply stability.

James Brown [19:44]: "The onset of climate change impacts... our farms are not as productive. It's extraordinarily hard to produce fine quality pearls."

Economic Realities of Pearl Farming

Pearl farming is capital-intensive, requiring substantial investments in infrastructure and technology. Farmers like James Brown face high operational costs, including heavy equipment and government leasing fees for ocean territories.

James Brown [09:23]: "The anchors that we use on these long lines are like 10 tons of concrete."

Moreover, the unpredictable nature of pearl yields means that even large-scale farms often struggle with profitability. Successful harvests are rare, and fluctuations in market demand can drastically impact a farmer’s revenue.

James Brown [10:36]: "In Australia, not many pearl farmers have been profitable over the last 10 to 15 years."

Shepherd highlights the difficulties in creating artificial scarcity to stabilize prices, as ongoing operations require consistent production.

Jeremy Shepherd [20:59]: "Farms are ongoing operations. You've got to keep it running, otherwise you're bankrupt."

The Business of PearlParadise.com

Transitioning from farming to retail, Shepherd’s PearlParadise.com capitalizes on offering a vast inventory at competitive prices by eliminating traditional retail markups.

Jeremy Shepherd [15:36]: "At PearlParadise.com, we call it a vip experience, but it stands for very important pearls."

The business thrives on trust and quality assurance, as there is no standardized grading system for pearls. Shepherd and his wife meticulously select pearls based on their personal standards for shape, luster, and surface quality, often sifting through thousands to find the best specimens.

Jeremy Shepherd [16:23]: "There is no internationally recognized grading system for pearl... we created our own standards."

High-value transactions, such as multi-thousand-dollar necklaces, are managed through exclusive virtual appointments, emphasizing personalized service and authenticity.

Influences on Pearl Demand

Market demand for pearls can be volatile and influenced by factors beyond natural supply constraints. A notable example occurred in 2023 when a Chinese influencer's endorsement drastically increased demand.

Jeremy Shepherd [21:05]: "A Chinese influencer named Ni Ni posted a series of selfies while wearing a strand of Tahitian pearls... prices were skyrocketing, up to 10x what we had just seen a few months prior."

Such spikes in demand can create temporary surges in prices, but as Shepherd notes, maintaining sustainable demand growth remains a challenge.

Conclusion: Navigating the Pearl Economy

The pearl industry exemplifies the delicate balance between natural beauty and economic viability. From the unpredictable yields of oyster farmers to the strategic retail approaches of entrepreneurs like Jeremy Shepherd, the journey of a pearl is as complex as it is enchanting. As environmental and economic pressures continue to shape the market, stakeholders must adapt to ensure the enduring allure and accessibility of these timeless gems.

Notable Quotes:

• "If all factors are equal, size determines the value. But luster is really that inner glow that gives pearls their beauty." — Jeremy Shepherd [04:29]

• "You'll be lucky to get one natural pearl out of every 10,000 pearl oysters." — James Brown [05:53]

• "There are so few perfect pearls... that you actually harvest." — James Brown [06:55]

• "We've got a vault in Los Angeles that's 1300 cubic feet and it's completely filled with pearls." — Jeremy Shepherd [14:42]

• "In Australia, not many pearl farmers have been profitable over the last 10 to 15 years." — James Brown [10:36]

• "A Chinese influencer... prices were skyrocketing, up to 10x what we had just seen a few months prior." — Jeremy Shepherd [21:05]

This episode was produced by Morgan Levy and Sarah Lilly, mixed by Jeremy Johnston, with assistance from Daniel Moritz Raps.