Not entirely true, and also not accepting that one person's "scalper" is another person's "bought this but decided I would rather have the money it seems to be worth now that I see how much this is".
Secondary markets provide liquidity, allow for original sellers to trade money for time, provide reputational protection based on societal perceptions (this one is a bit weird, and maybe the less defensible of the reasons. Selling your own inventory on a secondary market to avoid negative press for high prices is thwarting normal market information principles, IMO), etc.
> Not entirely true, and also not accepting that one person's "scalper" is another person's "bought this but decided I would rather have the money it seems to be worth now that I see how much this is".
That’s a bit of a straw man, literally no one considers that scalping. It’s generally understood to mean buying more of scarce product than you could ever possibly need with the intent to sell it at a massive markup.
Scalpers are parasitic rent seekers in the digital age. They do nothing to improve the logistics or liquidity of markets. They merely seek to monopolise supply to extract profit from consumers for a product they did not produce.
> That’s a bit of a straw man, literally no one considers that scalping. It’s generally understood to mean buying more of scarce product than you could ever possibly need with the intent to sell it at a massive markup.
That is by no means the accepted definition, nor an apt description. I know people that bought two PS3's when they came out in 2006, one to play, one to sell. That is generally accepted as "scalping", but they were not buying more than they could ever possibly need.
Many, many people that participate in the resale market are people acting like this. They buy tickets for themselves and some extra ones while they're at it because they were lucky enough to by available at the right time and/or get lucky. Sometimes they also do it for the occassional event or good they don't plan to use.
These are "scalpers" in every single single sense of the word, and the only difference between them and someone that makes a business out of it is scale.
> Scalpers are parasitic rent seekers in the digital age. They do nothing to improve the logistics or liquidity of markets. They merely seek to monopolise supply to extract profit from consumers for a product they did not produce.
Scalpers are just brokers that work in a different product. They make money by arbitrage, where the primary sales market is underselling a good compared to the secondary sales market. Additionally, they provide accurate market pricing because people responsible in the primary market don't want to for whatever reason (common ones includes upsetting ones fans, it being more work, harder to work out contract payments, etc).
And lest you think it's easy to just point at scalpers/brokers and at all the money they make because they're selling a $50 ticket for $200, consider that those are the extreme cases, and relatively few tickets go for that. There's also many tickets that go under cost. In the same event. By significant amounts. It's not uncommon to get tickets for 20% cheaper on stubhub. In some cases, when brokers have bought tickets and the event didn't sell out, you can find tickets for single digit dollars that went for $40+ originally.
I've talked about this before here.[1] In that example, I pointed to the market conditions for a specific event at that exact moment, where the primary market (TicketMaster) wasn't sold out and charging $39.50, TicketMaster's own secondary market was charging $36.50 for the same tickets, and Stubhub was charging $27. Who reaps the benefit of getting tickets for more than a 25% discount? Who do you think ended up paying for that? Where do you think the funds came from to pay for that? (here's a hint, you need to make an occasional 200%-300% profit in that business to break even over the long run in a lot of cases)
Here's another question, why and how is this different than the stock market, and in the ways it's different, how does it matter to the perspective you're expressing?
> These are "scalpers" in every single single sense of the word, and the only difference between them and someone that makes a business out of it is scale.
You're right they are scalpers; they are buying more than needed with the hope of making a quick buck.
However, like most things it's a matter of degree. Your friends were acting in the wrong and in the aggregate they did harm the market, but the people doing it professionally cause the most harm individually and hence tend to raise the most ire.
> Scalpers are just brokers that work in a different product. They make money by arbitrage, where the primary sales market is underselling a good compared to the secondary sales market.
They create scarcity in the primary market, which forces people into the secondary market. If scalpers did not exist, then the same number of people would get tickets, but there would be a greater welfare gain for consumers.
> And lest you think it's easy to just point at scalpers/brokers and at all the money they make because they're selling a $50 ticket for $200, consider that those are the extreme cases, and relatively few tickets go for that. There's also many tickets that go under cost.
They may be taking some risk in their venture, but they're still not providing any value. They are needless middlemen in a market that already sells direct to consumers. Also the cases are not that 'extreme', ask anyone trying to buy a graphics card right now, gasoline a week ago, or toilet paper when Covid-19 was starting up.
> Who do you think ended up paying for that? Where do you think the funds came from to pay for that? (here's a hint, you need to make an occasional 200%-300% profit in that business to break even over the long run in a lot of cases)
Presumably they are claiming a bigger share of the welfare pie than they are giving, else they wouldn't be participating in the market.
> Here's another question, why and how is this different than the stock market, and in the ways it's different, how does it matter to the perspective you're expressing?
The stock market has a social purpose. It provides a means for companies to raise capital to undertake investment. The market system is theorised to be the most efficient means to allocate this capital.
The scalpers don't serve a social purpose, they merely extract welfare from transactions that would have otherwise favoured consumers.
> Your friends were acting in the wrong and in the aggregate they did harm the market
Please explain this harm to the market. I don't see how the market was harmed in any way.
> They create scarcity in the primary market, which forces people into the secondary market.
There exists scarcity in the primary market, because otherwise there would be no benefit to buying the tickets. That's a fundamental misunderstanding you have. Resellers do not generally create demand, they capitalize on existing or future demand.
> the same number of people would get tickets, but there would be a greater welfare gain for consumers.
Define "welfare gain". I contend there is also welfare gain for consumers with a secondary market, but not necessarily the same consumers. The primary market prioritized people that are available at certain times and have money available at the initial sale time. The secondary market prioritizes people that may not have been available at the initial sale time at the cost of a more variable cost.
You can contend that your group of consumer is better or more worth than the group I've defined, but if that's your goal, please do so. Otherwise, a secondary market provides access for at least the same number of people, and sometimes more, as it's possible (and likely) that while some tickets might go at a premium, some others might go at a discount because of poorly executed strategies by brokers.
> They may be taking some risk in their venture, but they're still not providing any value.
They are. That are providing access. Without a secondary market, after the last primary market ticket was sold, it would be impossible to buy tickets to that event. Even if you allowed a secondary market but somehow restricted it to only those that intended to go but could not, you would shut out all those that wanted to go but could not be available to buy tickets during the period it was initially on sale on the primary market. For some events that's as short as a few seconds (and yes, even without brokers).
> They are needless middlemen in a market that already sells direct to consumers.
So is Amazon. So is your local Supermarket. So is any fresh fruit or produce market for that matter. I mean you can just drive to the farm, right? I hope you only like your produce and fruit in season, because people that warehouse it to sell at times when the market isn't flush with that product are just needless middlemen in a market that sells direct, right?
> Presumably they are claiming a bigger share of the welfare pie than they are giving, else they wouldn't be participating in the market.
If all you prioritize is cost, then you're not serving people very well. The very nature of a market is that the many diverse needs of the buyers will be served by different sellers that offer slightly different incentives for different costs. If we only prioritized for cost in food, we'd all be eating rice and beans every night and that's all that would be grown. Instead people prioritize taste, and nutrition, and health, and we have an actual market. If we only prioritized for cost in vehicles, we'd all be driving either a bicycle or a stripped down motorcycle, because who cares about comfort or safety?
> The market system is theorised to be the most efficient means to allocate this capital.
The market system is theorized to be the most efficient means to alloow buyers with diverse needs find a seller that can provide those needs. Sometimes that's cost, sometimes it's something else.
> The scalpers don't serve a social purpose
I've outlined some already above. To repeat, they provide liquidity, meaning there is availability of tickets at a cost people are willing to pay more often than without them. They provide the ability to find the true value of a ticket at any time, rather than the fiat price that was offered initially. This can mean that tickets are available for cheaper than originally offered for (see my real life example noted earlier).
You lost your entire argument right there. Amazon doesn't price gouge, and buys with the express intent to sell with reasonable margins to customers. They provider valuable services, like customer service and fast delivery. Scalpers provide jack shit value other than trying to rip off customers because they got something first, while offering no other value to customers.
> they provide liquidity
No, they don't. They steal liquidity, and sell items at markups while offering no other value to customers. None. Zero.
I didn't say they did. But by the argument of the GP, they are often (depending on the product) "needless middlemen in a market that already sells direct to consumers", which is what I was responding to.
> They steal liquidity
They offer stuff for sale in markets which would have nothing for sale at other times (because if supply didn't outstrip demand, there would be no profit to be made). That is liquidity where it might not have existed previously.
I understand not liking scalping. I don't necessarily like it (I would prefer there was enough supply to satisfy demand). But there's a difference between not liking something and not understanding it and denying the reality of it. You can't stop it without understanding what makes people buy things to resell at a profit, why others are willing to pay that extra amount, and why there aren't enough of that thing to go around in the first place which allows it to happen.
And you didn't provide any argument against them being "needless middlemen". Many middlemen are not needless, like Amazon, where a value is provided that benefits manufacturers, distributors, warehouses, sellers, and buyers. Some asshole buying tickets or PS5's specifically to resell with massive price hikes is not a valuable middleman providing a valuable service. They're a leech, forcing themselves into the middle of a transaction they didn't belong in the first place to steal value from both sides of the marketplace.
HBO was a perfect example of this. Cable companies acted as the middlemen, because HBO didn't have the staff or inhouse expertise to operate a direct-to-consumer facing product. Now they do, but cable companies can still offer services that make their participation as middlemen sustainable and desirable for some consumers.
> That is liquidity where it might not have existed previously.
It did exist, only it was stolen by scalpers. They're not creating value out of thin air. They're not redistributing assets geographically to make them more accessible, or offering secondary insurance or warranties that make choosing them a smart option. They're stealing opportunities from actual customers looking to purchase a service or good, but instead are forced to secondary markets because of rent-seeking parasites.
Scalpers only exist in markets where somebody is selling products below value.
Without scalpers, the product is distributed by sheer luck like a lottery, or being well-connected and knowing somebody who has early access to the product.
You can argue that a lottery mechanism or being well-connected is more fair that having the necessary money. There are a lot of people in planned economies where everything from food to housing to transportation works that way, and they would probably disagree.
> Not entirely true, and also not accepting that one person's "scalper" is another person's "bought this but decided I would rather have the money it seems to be worth now that I see how much this is".
Even just dropping resales to one GPU per person per year would make an enormous difference, let alone if it was limited to people that genuinely bought the one GPU for themselves.
It doesn't work. It's unenforceable without the government to enforce it, and even then people will skirt it.
Rules constraining how a market functions often don't work or have unintended consequences. The only real solution is to attack supply and/or demand. A rule limiting how many a person can buy doesn't actually affect demand, it just affects that market's ability to respond to demand. You get people that circumvent that, and if it's onerous enough you'll get a secondary market where they cost more but there's no limit on the amount you can buy, if there wasn't one already.
That is, it's restrictions on a free market which create secondary markets. If the price was constantly in flux base don demand, there would be no secondary market because it would provide nothing over the primary one.
People don't want that though, because we've been conditioned over the last century to expect prices to be stable because we've had large companies that decided to innovate and compete in other areas that decided pricing things accurately based on real world local conditions. I mean, I understand, I'm the same way. I don't want to walk into a store and find the thing I went to buy is twice as expensive as it was yesterday.
I do think that's a more natural and sustainable state though, as long as market principles are actually prioritized though, instead of just being paid lip service (having one entity control a large chunk of a market is bad, and so is making it hard to reason about items and features in a market, as competition and information are the life-blood of free-markets).
> It doesn't work. It's unenforceable without the government to enforce it, and even then people will skirt it.
Okay, but when I said "dropping" I wasn't talking about a rule, I was using that to demonstrate the problem.
> A rule limiting how many a person can buy doesn't actually affect demand, it just affects that market's ability to respond to demand.
There's a nearly fixed supply, because no amount of demand can affect the shortages.
There's a nearly fixed demand, because enough of the cards are going to be sold at MSRP to keep stoking it.
In a situation like that, someone arbitraging the prices is not helping supply and demand meet, they're just making a profit.
You want some amount of secondary market so that the people that very badly need a card can pay extra to get one now. But a tiny percent of cards going onto ebay is enough to fulfill that role. If half the cards end up massively marked up on ebay, it doesn't help allocate them more efficiently in any significant way, it just takes more money from people.
> when I said "dropping" I wasn't talking about a rule, I was using that to demonstrate the problem.
How is restricting activity not a rule? I don't think it would demonstrate the problem at all because I don't think it would actually do much (most people would ignore it). Maybe I'm misunderstanding what you meant originally or mean here?
> There's a nearly fixed supply, because no amount of demand can affect the shortages.
If demand dropped to the point below supply it wouldn't be a shortage.
> There's a nearly fixed demand, because enough of the cards are going to be sold at MSRP to keep stoking it.
> In a situation like that, someone arbitraging the prices is not helping supply and demand meet, they're just making a profit.
Sure they are. Without a secondary market and with a primary market that is fixed-price and a limited supply, after demand meets supply, nobody gets any more of that product, which means there's zero liquidity. With a secondary market, people re-sell for a profit, and the market has liquidity again. The people that want it are able to get it as long as they are willing to pay the extra amount. It's possible to buy the item where it would not be previously.
> You want some amount of secondary market so that the people that very badly need a card can pay extra to get one now. But a tiny percent of cards going onto ebay is enough to fulfill that role. If half the cards end up massively marked up on ebay, it doesn't help allocate them more efficiently in any significant way, it just takes more money from people.
I agree. I just don't think you can do anything about it usefully except to try to increase supply or reduce demand through various means. Everything else I've seen fails or has unintended consequences (which are hard to reason about ahead of time because they are by nature unintended).
I'm not arguing free markets always produce a good outcome, but I do think they generally provide the best outcome you can expect given the environment without relinquishing all control (and I think central planning only works for limited scopes and limited time frames).
The simple solution is to just increase the price of these cards to what the market deems they are worth, and the resale market problem goes away. The problem is that nobody (even me) really wants that, I'm just willing to say that while I don't want it for various reasons, it does solve the problem. It does that by reducing demand by increasing the price.
> It doesn't work. It's unenforceable without the government to enforce it
It seems to be working pretty well here in the UK actually, for nvidia's Founders Edition cards. They have a relationship with a single retailer, and you can buy one card.
Yes, people can circumvent it to a small extent, but not that easily.
You're just parroting your free-market religion here.
Yeah I always find it interesting that statements like that ("scalpers hurt literally everyone") can just be made and treated as gospel by most people. Not only is the statement not self-evident, but to your point, just a small amount of thought on the issue makes it obvious what the value is.
People love to get mad at a scapegoat rather than a root cause. So you blame the scalper rather than realizing that the concert you bought the ticket for set their prices way too low - perhaps because selling at the "true" price (somewhere between the sticker value and the scalped value) - would generate negative goodwill, or it would give the perception that an event (say Coachella as the classic example) is only "for rich people". The irony is of course that selling at an artificially low price doesn't suddenly make it not for rich people, it just adds a small random chance that you'll be able to convert your own time sitting there refreshing the website across many browsers into a cheaper-than-it-should-be ticket. But functionally the vast majority of people end up buying from scalpers or at least at a slightly above sticker price.
There's a related discussion about so-called "price gouging". IMO it's the classic scalper argument but just in a different form. Price gouging laws are not just immoral but are actively ineffective at their stated purpose; they just lead to the hypothetical price-gouge transaction never occurring. If you drive across state lines to bring HAM radios or water filters or what-have-you during hurricane katrina, and try to sell at above market rate, you'll be tossed in jail and your goods will be seized by the police, rather than making it out to the people who actually need them and are willing to pay 2x or 3x the usual price.
TL;DR: We've all got these twisted beliefs about how pricing works or the law of supply and demand, an illusion supported by the fact that our respective societies are so technologically/economically advanced that we can have massive supermarkets where you buy commoditized items that you can get at reasonably similar prices anywhere. Whereas if you go back in history to a pre-industrial time, a form of pseudo-bartering was the default and there was not this idea of a commodity, but rather every transaction, every buyer:seller relationship etc was a unique and non-commoditized interaction and thus it wouldn't seem weird to have different prices for different people or different prices at different points in time, etc.
Do you have any data on that ‘majority of people buy from scalpers’ claim?
One reason for anti price gouging laws is that it is not uncommon for people to buy out all supply, then turn around and charge more/sit on a stockpile to solve the artificially created shortage they themselves created - a term for that being ‘cornering the market’.
I haven’t generally seen too much anger at someone legitimately opening up supply by importing more or opening up more supply lines (especially if they say that’s what they’re doing). People have been pretty open to paying more in that case (albeit maybe not 10x more, though that is more because it’s hard to plausibly have such an increase in cost without literally airdropping supplies - which is a different beast).
There’s no shortage of people who tried to pull that and ended up with tens of thousands of dollars worth of toilet paper and hand sanitizer last year. If there’s not an actual shortage, merely a demand shock, trying to corner a market will not go well for you.
And many more that made millions. The ones that get caught get penalized in public/shamed, but there are many more that were not - I personally saw many amazon sellers doing it for months without any apparently penalty.
> The irony is of course that selling at an artificially low price doesn't suddenly make it not for rich people, it just adds a small random chance that you'll be able to convert your own time sitting there refreshing the website across many browsers into a cheaper-than-it-should-be ticket.
That depends on the level of demand and how low the price is.
It's pretty easy to have a situation where the number of tickets available is higher than the number of people that would have bought tickets for themselves on day one, but you hit immediate shortages when scalpers are also buying.
In a situation like that, scalpers are doing almost all harm. They add liquidity to a situation that already had enough liquidity, and extract tons of money in exchange.
> If you drive across state lines to bring HAM radios or water filters or what-have-you during hurricane katrina
That's the positive case. The negative case is someone buying it and putting it in their garage, or a store vastly increasing the price on something people need and they already had.
If you're trying to get paid for your labor, like driving essential supplies around, I would not call that gouging in the first place.
> It's pretty easy to have a situation where the number of tickets available is higher than the number of people that would have bought tickets for themselves on day one, but you hit immediate shortages when scalpers are also buying.
But the total number of people buying tickets is the same, all that's happen is it's being temporally shifted for the gain of the people that can afford to do so. This only works because the actual offered price of the tickets if far below that real cost people are willing to pay. If tickets were initially offered at an accurate price, there would be no money to be made buying them for resale (well, almost. There's still the option for artist demand to change over time with popularity).
There's only a few solutions to a supply and demand market problem where demand far outstrips supply that actually seem to work. Increase supply, or decrease demand. This has actually been done by some artists and solved the problem. Kid Rock, for example is known to play a large number of dates at a location, inundating with supply to the point only the best tickets can be sold for appreciable markup. Like, in his home town of Detroit, I think he played between 7 and 11 consecutive days in a stadium. Other artists will add dates after the initial sale depending on demand (which often destroys broker profits unless all those dates sell out too).
> In a situation like that, scalpers are doing almost all harm. They add liquidity to a situation that already had enough liquidity, and extract tons of money in exchange.
How good the liquidity there was and how much harm the brokers caused depends on how accurately demand matched supply. If there were 1000 ticket and 1000 people would ahve eventually bought them, then the brokers didn't really help. At the same time, they probably aren't going to make much money, since 1000 people willing to pay $40 doesn't necessarily mean those 1000 people are willing to pay $60, and given that reseller exchanges charge about 10% of the sale cost, they need to charge a lot more to make a profit. Brokers don't tend to want to buy for events where they can't really make money, so they try to avoid these events.
Alternatively, if the event has more tickets than consumers to buy them, brokers don't want to buy those either. Sometimes they do, and they sell at below market, sometimes well below market, just to recoup some of their money (having 20 tickets of 1000 at the event you bought for $40 when there's still 200 for sale on the primary market when the event is in a week means lots of tickets for sale for $20 or way less).
Finally, there's events where there's a lot more consumers than there are tickets. Perhaps there weren't enough tickets at the sale day to sell out immediately. It would have sold out well before the event date though, because there are way more consumers than tickets. In this case, at that point liquidity would have dried up. Brokers provide liquidity over the lifetime of the event. That's what they provide, and for that they extract money. There's a debate to be had as to whether they provide enough value for that service, but it's false to say the event had "enough liquidity", as if there was enough liquidity there would be no margin for brokers to make money, especially not the 10% cost on sale price needed to make a profit on the exchanges.
> But the total number of people buying tickets is the same, all that's happen is it's being temporally shifted for the gain of the people that can afford to do so. This only works because the actual offered price of the tickets if far below that real cost people are willing to pay. If tickets were initially offered at an accurate price, there would be no money to be made buying them for resale (well, almost. There's still the option for artist demand to change over time with popularity).
"all" that's happening, no. Causing people to pay more, even if they're willing to pay more, means they get less benefit out of the transaction.
> Finally, there's events where there's a lot more consumers than there are tickets. Perhaps there weren't enough tickets at the sale day to sell out immediately. It would have sold out well before the event date though, because there are way more consumers than tickets. In this case, at that point liquidity would have dried up. Brokers provide liquidity over the lifetime of the event. That's what they provide, and for that they extract money. There's a debate to be had as to whether they provide enough value for that service, but it's false to say the event had "enough liquidity", as if there was enough liquidity there would be no margin for brokers to make money, especially not the 10% cost on sale price needed to make a profit on the exchanges.
There would have been enough liquidity for the people that cared about the event to be able to purchase. That's enough liquidity. There is more liquidity now, and the benefit is that some of the people who didn't care very much get tickets too. This is a benefit, but it's not worth the downsides that the average amount paid goes up so much and that a bunch of people that were ready to buy a ticket on day one are now excluded.
> moral but are actively ineffective at their stated purpose; they just lead to the hypothetical price-gouge transaction never occurring. If you drive across state lines to bring HAM radios or water filters or what-have-you during hurricane katrina, and try to sell at above market rate, you'll be tossed in jail and your goods will be seized by the police, rather than making it out to the people who actually need them and are willing to pay 2x or 3x the usual price.
The reason is they don't want private individuals entering danger zones just to make a buck - a profiteer could easily end up a victim from the dangerous situation.
More often than not price gouging just makes things worse. During the early days of the pandemic you couldn’t find toilet paper in stores, but there were people set up one the road side willing to sell it you for crazy prices. Did these people manage to setup an international supply chain to furnish their road side store? Almost certainly not, they cleaned out the supermarkets ahead of other people.
The same thing happened with the colonial pipeline hack.
Not entirely true, and also not accepting that one person's "scalper" is another person's "bought this but decided I would rather have the money it seems to be worth now that I see how much this is".
Secondary markets provide liquidity, allow for original sellers to trade money for time, provide reputational protection based on societal perceptions (this one is a bit weird, and maybe the less defensible of the reasons. Selling your own inventory on a secondary market to avoid negative press for high prices is thwarting normal market information principles, IMO), etc.