News PS5 Scalpers Explain How They Can Sleep at Night

[Johnpombrio]

One of the common myths about scalpers is that they make a lot of money. Like day trading, crypto mining, and scalping, there are a few folks that make a ton of money, a minority of folks that do OK, and then there are the ones that get in over their heads without considering the timing. There is a short window of opportunity that once passed, things quickly go downhill in a hurry. I figure about half of the people scalping end up losing money in the long run from getting caught with overpaid purchases and no higher-priced market for them.

 

[Abion47]

Glad to see the idiot brigade has chimed in with this article. No, scalpers are not "heroes", but they do provide a valuable service for consumers. But emotions trump logic in modern-day society.

In a free market economy, scalping can only exist in one case, and one case only -- when prices are being held artificially low. This usually happens when the government interferes in some way -- today, though, it's happening because companies like Sony, Microsoft, and NVidia are afraid of being accused of "profiteering" from the pandemic. So they continue to hold prices below their proper level, with many people willing to pay two or three times as much for a product as they're charging. What do they think is going to happen?

The "anti-scalping" laws, regulations, and website-security checks being proposed to stop it are even more hilarious. Scalping was endemic in the former Soviet Union, and they couldn't stop it with sentences of hard labor in Siberian gulags. You think any of these measures will be more successful?

Raise prices, or increase supply. Nothing else will work. Period.

I had to respond to this completely backward logic.

Scalping exists regardless of what the prices are, but what makes scalping successful is when demand far outstrips supply and the scalpers are able to snatch up a large majority of what supply there is. This point of it requiring prices "being held artificially low" makes no sense whatsoever - whether the prices are low due to manufacturer involvement, governmental involvement, or whatever else, people aren't going to turn their nose up at the same product being sold cheaper by official retailers and opt for the higher prices offered by scalpers just because "it's lower than it should be". People only buy from scalpers because they have no choice, not because they are standing on principle (whatever that principle could possibly be).

Making scalping illegal won't stop scalping outright, but it will put a major dent in the kinds of people who do scalp. I'd wager most people scalping now are just average people looking for a quick buck doing it because they can. If it's made illegal, those kinds of people won't want to do it anymore for fear of being caught and fined. Sure, some of them will still scalp, but with so fewer people doing it, the regular market supply can get closer to what it should be.

I also can't help but notice you didn't mention what this "valuable service for consumers" actually is. I for one can't possibly think of what it could be. They are, generally speaking, opportunistic egotists, and if they seriously think they are doing nothing wrong, that should be held against them as evidence of partial sociopathy.

EDIT: And it's cute that you think we are living in a free-market economy.

 

[Lucky_SLS]

If the PS5 stock in Argos got sold even before they become available to the public, that's 100% bots purchase. So can't they like halt the delivery for the said purchase and identify the scalpers?

 

[g-unit1111]

One of the common myths about scalpers is that they make a lot of money. Like day trading, crypto mining, and scalping, there are a few folks that make a ton of money, a minority of folks that do OK, and then there are the ones that get in over their heads without considering the timing. There is a short window of opportunity that once passed, things quickly go downhill in a hurry. I figure about half of the people scalping end up losing money in the long run from getting caught with overpaid purchases and no higher-priced market for them.

The Bitcoin gold rush is just like the 1849 gold rush. Back then, the people who were really getting rich were the ones selling the mining equipment. The rest is quite literally fool's gold.

 

[Endymio]

Dead wrong. Digital edition release price is $399, disc edition is $499. So, let's say 30% more. That means $520 and $650 respectively, for those two.

Just perusing completed eBay sales, I see a digital edition sold for $690, and the disc edition selling for $750. That digital edition is thus 72.5% higher than the release price, and the disc edition is a "mere" 50% higher. I don't know why you think market forces are magical somehow for your argument, but there's no way that a price increase of 25-30% would have stopped scalping. Not even close.

Oh, and let's not forget that they're charging $40+ shipping. Let's say ONLY $40. That $690 digital edition unit is now $730, and that $750 disc edition one is now $790.

So many fallacies in such a short post. Let's take the largest one first.. The price consumption curve is, as the name implies, a curve. Scalpers don't supply the entire market: they supply only the upper portion of that curve: those willing to pay the highest surcharge. The people here in the forums grousing that "they'll never pay scalper prices" are the lower end of that same curve. When a manufacturer raises prices, they affect the entire curve. A scalper's price affects only a small fraction of that curve.

Let's illustrate with something more concrete. Sony offere 5M units of a console at $500/each. It sells out, meaning there is a certain level of of unsatisfied demand. Some of those unfilled customers are only willing to pay MSRP or slightly higher, whereas others will pay double or more. Now, had Sony introduced the console at $650, then at least some of those who purchased at $500 would no longer buy. Unsatisfied demand is ineluctably lower, and thus the price point required to balance it is lower as well. The price drops - and because elasticity at this point is higher -- it drops more dramatically. Do you think those prices on Ebay come out of thin air? They float to a degree, yes -- but over time they float to the level that exactly balances scalper supply with that unsatisfied demand. A higher MSRP raises the ability of scalpers to buy (increasing their supply), and lowers the demand non-scalpers have for their product as well.

There's a third factor as well. Scalpers have ancillary costs -- Ebay commission costs, extra shipping costs (you have that effect exactly backwards in your analysis) -- as well as a certain degree of risk in any transaction. Selling a $500 console for $900 allows them to easily pay those costs, and still balance the risk. But selling a $650 console at $750 is a much dicier proposition.

In summary, the notion that, if scalpers are selling at a 50% markup implies that manufacturers would have to sell at the same price to entirely eliminate scalping is utterly incorrect.

 

[Endymio]

Scalping exists regardless of what the prices are.. This point of it requiring prices "being held artificially low" makes no sense whatsoever...people aren't going to turn their nose up at the same product being sold cheaper by official retailers and opt for the higher prices offered by scalpers just because "it's lower than it should be". People only buy from scalpers because they have no choice, not because they are standing on principle (whatever that principle could possibly be).

It seems they no longer teach even the rudiments of economics in school. I'll go slower this time.

In a free market, prices float to exactly balance supply with demand. This is why when we (those of us who live in market economies at least) walk into a store, we are accustomed to seeing the shelves packed full of products. We become so accustomed to there always -- ALWAYS -- being supply to meet our demand that if we so much as see a single brand of toothpaste out of stock in a supermarket shelf, we become annoyed, whereas those seeing an "out-of-stock" indicator for months at Newegg.com believe something has gone wrong with the entire universe.

In a non-free market, however, the opposite is true. Walk into a department store in the days of Soviet Russia and it was like an art-student's exercise in perspective drawing -- rows of empty shelves stretching to infinity. Meanwhile, outside the big cities, factories were producing untold millions of products that no one wanted to buy. Shortages and oversupply. Prices were not allowed to float, so there was always too little or too much of everything.

Scalping can only exist when there is a shortage. (You had at least that much right in your post.) But shortages only exist when prices are being held artificially low: below the point at which demand would match supply. I'm sure you've noticed your local market placing overstocked items on sale? That's to increase demand, and balance the overage. When prices rise, the opposite happens. Demand decreases, to the point that supply can fill it. With no shortage, there is no scalping.

I also can't help but notice you didn't mention what this "valuable service for consumers" actually is. I for one can't possibly think of what it could be.

Why not read an economics textbook sometime, and find out?

 

[samopa]

"Jokes aside, Jordan attempted to justify scalping to McGregor by comparing scalpers to grocery stores. “Essentially every business resells their products,” he said. “Tesco, for example, buys milk from farmers for 26p or so per liter. No one ever seems to complain to the extent as they are currently doing towards ourselves.”

iT'S NOT SAME CASE, Tesco never buy from another local retailer, they buy from distributors or producers (hence the farmers), so they DID NOT compete with their customer. Normally, distributors or producers did not sell their product directly to the customer.

Scalpers in other hand, buy from every retailers available, so they will deny end customer buying product from legit retailer, and in the process selling the product to the same customer that denied to buy the product.

If TESCO work like scalpers, they buy a milk from every retailers available, not just from producer/farmers, so none of custumer can buy the milk except from them, the government surely will take some actions.

 

[Endymio]

iT'S NOT SAME CASE, Tesco never buy from another local retailer, they buy from distributors or producers (hence the farmers), so they DID NOT compete with their customer.

I don't wish to blow your mind, but if it wasn't for companies like Tesco, who do you think consumers would buy milk from, if not farmers or their distributors?

 

[King_V]

So many fallacies in such a short post. Let's take the largest one first.. The price consumption curve is, as the name implies, a curve. Scalpers don't supply the entire market: they supply only the upper portion of that curve: those willing to pay the highest surcharge. The people here in the forums grousing that "they'll never pay scalper prices" are the lower end of that same curve. When a manufacturer raises prices, they affect the entire curve. A scalper's price affects only a small fraction of that curve.

Let's illustrate with something more concrete. Sony offere 5M units of a console at $500/each. It sells out, meaning there is a certain level of of unsatisfied demand. Some of those unfilled customers are only willing to pay MSRP or slightly higher, whereas others will pay double or more. Now, had Sony introduced the console at $650, then at least some of those who purchased at $500 would no longer buy. Unsatisfied demand is ineluctably lower, and thus the price point required to balance it is lower as well. The price drops - and because elasticity at this point is higher -- it drops more dramatically. Do you think those prices on Ebay come out of thin air? They float to a degree, yes -- but over time they float to the level that exactly balances scalper supply with that unsatisfied demand. A higher MSRP raises the ability of scalpers to buy (increasing their supply), and lowers the demand non-scalpers have for their product as well.

There's a third factor as well. Scalpers have ancillary costs -- Ebay commission costs, extra shipping costs (you have that effect exactly backwards in your analysis) -- as well as a certain degree of risk in any transaction. Selling a $500 console for $900 allows them to easily pay those costs, and still balance the risk. But selling a $650 console at $750 is a much dicier proposition.

In summary, the notion that, if scalpers are selling at a 50% markup implies that manufacturers would have to sell at the same price to entirely eliminate scalping is utterly incorrect.

Ok, I get that you talk a lot, but you did just that and nothing more. Talk a lot. Do you see scalpers sitting on stock that they are unable to sell at the prices I've been finding? Hell no, those were the LOWEST prices of completed sales that I found.

eBay commission costs are the ONLY extra costs that scalpers are incurring, and that's hardly at the level of being burdensome. The shipping cost is being passed on to the buyer, and you're assuming that no padding is happening on that shipping cost.

They are providing NO value-add whatsoever.

Your assertion is still ridiculous. There is no way that increasing the the original price by only 25-30% would have eliminated scalping. You appear to be hung up on some sort of surrealist view of what the "free market" is.

 

[funguseater]

Question: "How do you scalpers sleep at night?"
Answer: "In a king sized bed"

 

[Endymio]

Ok, I get that you talk a lot, but you did just that and nothing more. Talk a lot. Do you see scalpers sitting on stock that they are unable to sell at the prices I've been finding?

Well, you certainly missed the point. Do you see every single person wanting a new console clamoring to pay that scalper's price? No. When you figure out how that phenomenon affects the entire demand curve, reread my post again and see if it makes sense.

eBay commission costs are the ONLY extra costs that scalpers are incurring... The shipping cost is being passed on to the buyer

Sigh, no and no. How do you think (most) of those scalpers received the card they're selling? They had it shipped to them before shipping it onto their buyer.

Now, I'll go very slow: A. Card. Shipped. Twice. Pays. Two. Shipping. Costs.

 

[King_V]

Well, you certainly missed the point. Do you see every single person wanting a new console clamoring to pay that scalper's price? No. When you figure out how that phenomenon affects the entire demand curve, reread my post again and see if it makes sense.

No, it doesn't because the base premise is ridiculous. If there were no scalpers at all, every single person wanting a new console would still not be able to buy it at the original MSRP because there aren't enough.

Pricing them higher than the MSRP originally given, but lower than the average scalper price (recall, I used the lowest prices I found, not the average) would not have changed the fact that all of them would have been sold.

Sigh, no and no. How do you think (most) of those scalpers received the card they're selling? They had it shipped to them before shipping it onto their buyer.

Now, I'll go very slow: A. Card. Shipped. Twice. Pays. Two. Shipping. Costs.

1. You are assuming no scalpers were able to take advantage of free shipping, ever.
2. You're assuming that they're charging a legitimate shipping cost rather than an inflated cost.
3. Even if the scalpers didn't get the console with free shipping, this extra cost is providing no additional value.
4. We're not talking cards in this thread, but consoles. The general idea still applies, but stay on topic.

When it comes to economics, you have a Belief™. You have a strict doctrine about economic principles, and assume that the rule applies, regardless of real-world circumstances.


EDIT: now, if you want to talk GPU cards, your Economic Belief™ goes even further out the window, because the cryptomining aspect of it throws everything off.

 

[USAFRet]

On a $1000 sale, absorbing $15 in shipping is not really a deal breaker for the scalper, if he's selling for 50-100% over purchase price.
OR the buyer.

 

[Endymio]

When it comes to economics, you have a Belief™.

Yes. I wish I could claim credit for the idea itself, but efficient pricing in regards to scalping and black markets is one of the most well-studied phenomena in economics; a few hundred Ivy-league professors are there ahead of me. But never fear, I will alert them that you've discovered they're all wrong.

If there were no scalpers at all, every single person wanting a new console would still not be able to buy it at the original MSRP because there aren't enough.

That's inherent in the concept of a shortage, no? And, as I've already explained to you, artificially low prices create shortages. Always and ineludibly.

You are assuming no scalpers were able to take advantage of free shipping, ever.

Lol, no. I'm assuming that at least some scalpers paid shipping costs. I'm also realizing that, "free shipping" is still a cost, just one absorbed by the retailer in their own pricing model, and that every scalper who takes advantage of a free shipping opportunity denies that opportunity to an end consumer. The net effect is unchanged.

if you want to talk GPU cards, your Economic Belief™ goes even further out the window, because the cryptomining aspect of it throws everything off.

Why do you believe this is so?

 

[Endymio]

On a $1000 sale, absorbing $15 in shipping is not really a deal breaker for the scalper, if he's selling for 50-100% over purchase price.

Yes, but and however, as I explained in the original post, that $15 shipping charge and a $50 site commission fee is much more significant when the scalper is trying to sell a $650 item for $750. Aggregate inefficiencies are one of the reasons that the manufacturer need not raise pricing to the scalpers' level to entirely eliminate scalping.

 

[USAFRet]

Yes, but and however, as I explained in the original post, that $15 shipping charge and a $50 site commission fee is much more significant when the scalper is trying to sell a $650 item for $750. Aggregate inefficiencies are one of the reasons that the manufacturer need not raise pricing to the scalpers' level to entirely eliminate scalping.

Imaginary numbers either way can be (and are) used to prove whatever point is trying to be made.

The math and conditions between $650buy->$750sell is different than the math of $500buy->$1000sell.

I'm just amused at what might be the benefit of this being an "intentional act" on the part of the manufactureres. Artificial shortage.
What is their end game?

 

[Endymio]

The math and conditions between $650buy->$750sell is different than the math of $500buy->$1000sell.

That was the point of my original post. Glad you're now agreeing.

 

[USAFRet]

That was the point of my original post. Glad you're now agreeing.

I don't think we're agreeing as much as you might think.
But OK...

 

[jasonf2]

Scalpers bring no benefit to society but instead simply run up the cost of goods that would typically be available in the retail chain by making them less available. While there may not be laws against scalping in many jurisdictions I deplore it and do not accept it as an ethically acceptable practice. Scalpers whining about how they are being perceived and called out as a public parasite is a lot like strip club owners complaining to a church with a "valuable service to the community" defense. Sorry I have no sympathy.

 

[drivinfast247]

The idiots are the ones paying anything over the original cost! Period!

 

[USAFRet]

The idiots are the ones paying anything over the original cost! Period!

FOMO !

 

[jasonf2]

It seems they no longer teach even the rudiments of economics in school. I'll go slower this time.

In a free market, prices float to exactly balance supply with demand. This is why when we (those of us who live in market economies at least) walk into a store, we are accustomed to seeing the shelves packed full of products. We become so accustomed to there always -- ALWAYS -- being supply to meet our demand that if we so much as see a single brand of toothpaste out of stock in a supermarket shelf, we become annoyed, whereas those seeing an "out-of-stock" indicator for months at Newegg.com believe something has gone wrong with the entire universe.

In a non-free market, however, the opposite is true. Walk into a department store in the days of Soviet Russia and it was like an art-student's exercise in perspective drawing -- rows of empty shelves stretching to infinity. Meanwhile, outside the big cities, factories were producing untold millions of products that no one wanted to buy. Shortages and oversupply. Prices were not allowed to float, so there was always too little or too much of everything.

Scalping can only exist when there is a shortage. (You had at least that much right in your post.) But shortages only exist when prices are being held artificially low: below the point at which demand would match supply. I'm sure you've noticed your local market placing overstocked items on sale? That's to increase demand, and balance the overage. When prices rise, the opposite happens. Demand decreases, to the point that supply can fill it. With no shortage, there is no scalping.

Why not read an economics textbook sometime, and find out?

In premise I agree with you. However in practice you are neglecting that there is a self imposed price ceiling between the consumer electronics manufactures that establishes MSRP. So while in technicality Sony could probably run its price up to $850 for a PS5 at launch the overall consumer backlash would leave it in a position to lose the current generation console war (via substitution). So while you can simply say the price is artificially too low, as soon as the initial purchase surge is over it is an optimal price as equilibrium re-establishes. The quantity demanded at launch is much higher than quantity supplied so shortage is inevitable. When scalpers are purchasing the lions share though it is artificially increasing the quantity demanded because they are not actually consuming the good, just marking up for resale and selling back out . This is causing a market failure in which scalpers profits are the deadweight loss. The activity of the scalpers pushes the quantity demanded up on the demand curve to a price that is artificially higher than the market should be in the first place. Online purchasing, specifically bot based purchasing, has moved this issue to a level where legislation should be brought up because it has moved from the point of public nuisance to causing major shortages in many areas of consumer goods, especially consumer electronics. IE I cannot buy a video card at MSRP because scalpers have purchased all of the inventory and ran the price up several hundred percent.

 

[USAFRet]

because scalpers have purchased all of the inventory and ran the price up several hundred percent.

Toilet paper a year ago...

 

[jasonf2]

Toilet paper a year ago...

Exactly

 

[Endymio]

In premise I agree with you. However in practice you are neglecting that there is a self imposed price ceiling between the consumer electronics manufactures that establishes MSRP.

I'm not ignoring it; I've pointed it out repeatedly over the last few months. I then follow by noting that it's due to attitudes such as those displayed on this message board that make manufacturers chary of setting the price appropriately, despite the benefit to consumers.

IE I cannot buy a video card at MSRP because scalpers have purchased all of the inventory and ran the price up several hundred percent.

In any shortage situation, some potential buyers will get product, some will do without.

In the absence of scalping, those who get product are the result of sheer luck, or, in the best case, a "first come first served" model. That may appeal to naïve beliefs of fairness, but long economic history has taught us that the most effective, efficient system is when (excluding a few life-essential commodities) products go to those willing to pay the highest price. Scalpers ensure that happens. If you're willing to pay $1000 for that console and I'm not, then either (a) you want it more than I do, or (b) you have much more money than I do, and so you value $1000 in cash less than I do. Either way -- you getting the console is the better solution.