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Comment by kbaker | Hacker News Reader

One important part of the chip shortage is the massive amount of price gouging going on.

Every IC is being bought up by new 3rd party distributors to scalp to desperate electronics manufacturers.

Take a look at this chip we are just now crossing as an example, click on 'Non-authorized stocking distributors':

https://octopart.com/tps2052bdgnr-texas+instruments-699312?r...

Win Source has a bunch, but you will pay 6x the cost. We have been quoted even 100x the list price for some ICs on our boards.

Luckily as a small company we are nimble and can mostly cross to similar components, and have been for months now, but a whole board assembly run can be stopped with a single component being impossible to find out of hundreds on the BOM.

Having scalpers in the mix raising the price for all components worries me that the chip shortage might not end for many years, as they can self-fund by raising their prices to stock up on new supply. Not to mention the higher number of random failures as counterfeits easily find their way into the supply chain without 'authorized' distributors.

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Scalpers are not the problem as they seem, they are like market makers for stock exchanges. They buy low and sell high, always. The factory could tell you that they're currently out of stock for the next few months, but a scalper will never be out of stock, because their prices rises so high that only very few desperate companies would buy. The point is, it's better to have the option to buy something at a high price, than to have no option to buy at all.

The way I see it, this makes sense in a hypothetical world of perfect theoretical models (you may recognize this world as being the one inhabited by frictionless, perfectly spherical cows). In this world, scalpers cause the market to price in "stickiness" - the more critical an item is to the buyer, the more they'll be willing to pay - so the supply ultimately gets allocated to the most desperate of buyers, for the price of "your entire margin", or possibly "literally all you have", if the buyer's survival depends on it.

Maybe this makes sense in that theoretical world - where there's no inertia, no friction, no capital investment, no jobs and livelihoods tied to the outcome. But in reality, scalping seems to be the purest form of parasitism. In a crisis, scalpers' activities may kill perfectly fine companies (or people) who would've otherwise limped through the rough times and survived, upsetting an industry long-term, and it forces everyone to waste their money.

And even if you think that this kind of market culling is fine, I'm not seeing why all that money should go to the first asshole who managed to secure a large loan in time to buy off the entire stock of some good.

It seems to me like most of the (alleged) benefits of scalpers would be equally well achieved by selling (some fraction of) the items in auctions, instead of just picking a price.

However, my impression is that consumers would view this in a negative light, and that the harms to the seller’s reputation would be enough to outweigh the initially increased income. This seems to be the source of the inefficiencies that scalpers exploit/address.

This leads me to an idea which, I don’t believe is typically done, but which I don’t know why not: Why wouldn’t a company just, list a price that they are “going to sell it at”, and then “sell” a large proportion of them at that price to an entity which isn’t publicly connected to the company, and then that organization sells the items via auction (and returns a large proportion of the profits back to the company).

While on the one hand, I don’t see how I’d be able to tell if this was what was done, and therefore don’t see how to confirm that this isn’t what is being done in the cases where there are scalpers, I don’t think this is being done, and don’t know why.

> This leads me to an idea which, I don’t believe is typically done, but which I don’t know why not: Why wouldn’t a company just, list a price that they are “going to sell it at”, and then “sell” a large proportion of them at that price to an entity which isn’t publicly connected to the company, and then that organization sells the items via auction (and returns a large proportion of the profits back to the company).

That's often how a lot of today's "scalping" is done - AIUI a lot of "secondary market" tickets on StubHub etc. are sold by an entity that's owned by TicketHub or whoever, so that the artists can sell their tickets at the price the market will bear but put a low face price on them for the sake of their reputation.

I and many other gamers have a negative view of Nvidia because of their inability to thwart scalpers and crypto miners. To quote a wise man, "so Nvidia, fuck you!"

It's not really NVidia's fault. The problem is that you can buy a GPU for $1000 and use it to print $2000 of money. That's annoying because most people just want to play a computer game, not print $2000 worth of money.

The other thing NVidia could do is keep all their GPUs for themselves and mine crypto.

> The other thing NVidia could do is keep all their GPUs for themselves and mine crypto.

Who says they are not already doing that in some capacity?

That sounds like a lot of work, and a PR nightmare if the public ever found out.

Nvidia is already a money printing machine, and their margins are growing. I doubt it’s worth the time investment and risk exposure to the crypto markets for Nvidia. Better off using that time a money inventing better money printers.

Why would you start digging for gold if you are already becoming rich producing and selling the shovels?

I guess it's easier to make a shovel than it is to make a GPU, and it's easier to do industrial-scale crypto mining for a company that already owns a datacenter than it is to build an industrial earth processing operation. If NVidia wanted to mine a lot of coins, they no doubt have a few employees that could get that started. But it doesn't seem like they want to, perhaps because it's not a sustainable business or perhaps because their customers are already mad at them and they don't want to make it worse. (Though it's not really their fault that customers are mad at them; they're actually mad that someone invented cryptocurrency, which is not NVidia's fault.)

Ok, but like, would their overall reputation be higher if they were to directly put some proportion of their inventory up for auction (like, each item individually, not like one auction for a bundle of a very large number of GPUs) instead?

No, but at least they are being enriched to invest in research and development instead of some arbitraging trolls that will spend it on hookers and blow.

No, the prices will still be comparable to scalper prices, and the cost-conscious consumer market will remember the company's price gouging when they make their next-generation purchase

This response was initially confusing to me, but thinking about it, I think it led me to realize that complaints about things like this are, essentially, an attempt at coordination among consumers, in order to collectively get a better deal.

If there were only a single consumer, a monopsony, they would have a large degree of influence on the price.

Building a public consensus on what prices are reasonable and what prices are "too high" allows for exerting similar pressures on the price, as if there were an organization which represented a large portion of the consumers and which would make a single decision for all of that portion (like, a purchasing union thing).

I hadn't realized this.

This is exactly how concert ticket scalpers work. Bands/producers covertly but with full awareness sell most of the ticket to scalpers, which outsources the reputation hit.

My mother told me about some new anti-scalper scheme she encountered recently when she was looking at ordering concert tickets for herself and my father. It went something like this:

- basket size limited to IIRC a maximum of five tickets for the same concert,

- name of the buyer is linked to (idk, maybe even printed on) the tickets AND

- the named buyer would have to be there with the group to enter the venue.

I think this would probably be pretty effective in countering that bottom-feeding scum called scalper.

You don’t seem to have caught my point: it is the bands themselves that work with the scalpers. They sell a chunk (often majority) of tickets directly to the scalpers for a price above what they publicly claim to charge. Then, they introduce measures like you describe, to reduce competition from grassroots scalpers, to ensure stable business situation for the anointed scalpers.

This arrangement works great: the reputation hit is very successfully outsourced to what you call “bottom feeding scum”. The band benefits from higher profit than they would otherwise be able to get if they tried to sell all their tickets at the publicly advertised price, which quite apparently is below the market clearing price. Ticket availability is increased: instead of having to fight to book the tickets in 8 seconds after the registration is opened, everyone can buy tickets at their leisure, simply paying more for convenience when they buy from scalpers.

Let me ask you this: for the band you are talking about, despite all the measures you describe, you still could buy tickets on StubHub, no?

There was a minor controversy nearly a year ago where a MSI subsidiary that was only supposed to get old/refurb stock managed to get new stock of the nvidia 30 series and then proceeded to sell them with inflated pricing. Being charitable I'd say it's likely someone over-enthusiastic at that subsidiary and it blew up in their face, but it doesn't help with them being perceived as fair

Maybe producer can sell some part on auction and donate extra income to some charity?

At least this way parasitic scalpers would not benefit.

(this assumes that charity would be some actual charity, not just existing to transfer money to family of CEO or something similar)

Scalpers perform a social service by rationing demand and ensuring availability. They don't eat the whole consumer surplus, rather, they must compete amongst themselves and the price you pay is the amount that makes client N+1 walk away if total supply is N. Some of the buyers will find that close to their margin, but others, for which the product is essential in very valuable (thus socially useful) goods or services, will thank God they have found the supply.

Think about hospitals paying 10 times more for antiseptic and performing surgeries, instead of someone drenching their driveway with that 10$ antiseptic while someone else dies without a needed surgery. By raising the price and pocketing $90, the scalper has prevented resource waste and supplied to the patient and hospital a service worth hundreds of thousands.

If a scalper becomes a monopoly, they can extract a monopoly rent and really bleed everyone dry - but so can a producer in the same situation, so the problem is low competition not intermediaries.

> Scalpers perform a social service by rationing demand and ensuring availability.

While the fundamental issue is indeed price discovery, even in the most abstract market -- stocks/fx/derivatives there are numerous regulations in place to limit the predatory behavior of certain speculators.

It is astonishing we have no such regulation for real-life items.

Scalpers are compounding a problem, by reselling something at 5X the price they invite others to do the same, they create artificial demand and speculation.

> Think about hospitals paying 10 times more

No, think somali pirates in terms of transportation costs. If you only look at it throught the autistic-economical lens, they are entrepreneurs helping the market find the right price for transportation.

> the problem is low competition not intermediaries

The problem is inelastic markets and high moats. Think New York real estate market where mobsters around the world inflate property price and will destroy the local economy.

Think about drug cartels and drug prices.

Think about the USD and its status as a global currency and its relationship to the Military Industrial Complex.

> It is astonishing we have no such regulation for real-life items.

We have something close for emergency situations. It’s illegal to price gouge during something like the aftermath of a hurricane.

It’s a well intentioned law. But for some things, it really may be best to let market forces dictate. For example, generators are in high demand and short supply during a hurricane. Folks snap them up so they can play Nintendo. Because they’re inexpensive due to gouging laws, they sell out fast. Now, someone who actually needs that generator for important, possibly life-saving work is SOL. And there isn’t a price incentive to expedite bringing in more supply.

Edit: I still think the scalpers are scumbags. Just wanted to point out an argument I found compelling in the past.

You don’t need to apologise! It is sad that people don’t get this simple mechanism. I believe that lots of misery could have been averted if market signals where not distorted when they are needed most. E.g. in your example higher prices for generatora would not only prevent people from buying them for less important things but also open up a location arbitrage opportunity and incentivise to bring generators to the place where they are needed most.

In a civilized society it is the governments burden and obligation to ensure scarce resources are shared responsibly. When this process is disrupted and not quickly remedied you will inevitably discover that people take matters into their hands to get what they need. They might commit white collar crimes or engage in destructive or violent robberies and protests. They might also roll out the guillotines and collect some scalps to remind society at large that the most dangerous people are those who’ve had everything robbed of them. When entire regions and communities are allowed to reach this point war is almost inevitable.

Absolutely not. “Sharing resources” doesn’t work when there is not enough to share.

A civilized society works when supply and demand intersection determines the price of goods and services.

Governments should interfere for specific cases (life emergency, masks, etc) and there are laws prohibiting scalping for these commodities - rightfully so.

Your idea of government intervention would assume that government is a rational entity. The truth couldn’t be further from it. Bribes and political favors from large companies would leave everything worse than it was before.

Imagine you're a low volume medical instrument maker and you need a dozen STM32 chips for your life saving device. Scalpers make sure that these chips are available and ready to ship, albeit at a premium which the company is happy to pay for given the circumstances.

Laws prohibiting "scalping" or "price gouging" in emergencies often makes problems worse by incentivizing hoarding and disincentivizing more suppliers from entering the market.

Price gouging laws target the products with most serious risk of shortages and guarantee shortages. I think back to the gas pipeline shutdown earlier this year, and how simply that could have been a non-issue if stations had been allowed to raise prices.

The problem is one of optics - if life-essentials were allowed to be price-gouged, the local gov't officials get blamed for not instituting price control during the period of shortage. Even if the shortage would've been worse had there been price control!

The government is often the cause of scarcity.

If price sky rocket, investors will increases production until prices are lower.

Government can mess with this by limit prices causing investors to stay away, meaning fewer chips get built, thus ensuing a temporary problem gets worse.

You can't increase production of semiconductors within 3-4 years.

Those assembly lines are highly specialized and extremely efficient. After all this time, the best they can do is 1% extra efficiency per month.

And factories were big and owned by the evil rich, so Russia socialized them. Thus leading to decades long shortages for all but the very rich.

A short term (1-5) year problem is no reason to takes steps to ensure a generational problem.

Free market is brutal about improving efficiency and growing with demand.

I think that everyone I've met with this viewpoint has been an "intermediary" or one who profits from them.

Your thoughts on that?

You're probably doing a bad job of inviting people to share their actual opinions with you. The easy & practical choices here are:

1) People with more money to spend get first pick of stuff.

2) Lottery / people who get to the store-front first.

Both of those are legitimate, although #1 does have a lot of support and theoretical backing in practice. Most of the third ways that get tried devolve back into one of those 2.

> "Scalpers perform a social service"

Good luck finding anyone willing to recognize this absurd point.

> "the problem is low competition"

Tell that to the GPU market.

You disagree but with no reasons. You should consider why you hold that belief.

When did I say I disagree?

"[...] "Scalpers perform a social service" [...] absurd point".

Do you mean that you think it's absurd but you don't disagree that scalpers perform a social service?

> Good luck finding anyone willing to recognize this

Indeed, most people are pathologically incapable of performing utilitarian reasoning and have a very hard time with this point. Very unfortunate, because that's what informs most economic policy.

Yes, this is exactly my point, thanks for putting it that way.

I recognize this "absurd" point.

Right, but most don't. Maybe try and understand what I'm saying.

I've noticed a new wave of neo-capitalists who seem to be actively sympathising with (if not encouraging) scalping. "It's just the way the free market works!" "That's how retailers always worked!" "It levels out demand!".

Such grubby people.

In basically all my hobbies, scalping has become the norm now. Computers, Japanese cars, tabletop games, hell even kids toys. It does feel like there's been a massive increase in the number of people with enough capital to see a trend and basically buy the market out with the intention of making a profit.

So what's your solution? If there is limited number of 3090 GPUs should they be allocated to those who order them first? By random? Auction?

Scalpers at least ensure you can get it of you really need it (that is willing to pay a lot).

I don't have a solution nor do I think I need to offer one, I just think that people who engage in (and sympathise with) scalping are grubby people.

Let’s say resources are allocated first come first served. What if I could pay someone to camp in front of the store and wait in line for me?

It's not illegal to be an asshole. At least scalpers reveal the true cost of the product.

When did people start dousing their driveways in antiseptic?

People do all kind of weird shit especially under stress during pandemic. Tons of richer people who are not scalpers bought ventilators for instance. And this is very expensive medical equipment which is completely useless without team of specialists to operate.

So people bought ventilators completely useless for them make supply shortages on them much worse. And unlike scalpers these people who do something like that due to panic are unlikely to sell them back to market when they're most needed.

Your describing a capitalist dystopia where people with capital can buy up commodities on the cheap and then resell it for 200~900% markup. No thanks I rather not want to life in such a dystopia.

Governments can do this without the inefficiency of the scalpers profits in cases where the need is great.

Also known as a command economy, a staple stalinist recipe.

> Also known as a command economy, a staple stalinist recipe

No. That’s an extreme, just like your idea of what you call a “social service” performed by scalpers.

There’s a middle ground, and it’s certainly possible to regulate a market to mitigate the most pathological consequences of capitalism without Stalinism. In fact, that happens all the time.

Such an idiotic statement. When every other country was suffering under scalpers buying up mask supplies at the beginning of the pandemic Taiwan, South Korea and some other countries actively took a hand in mask distribution. The result:

- cheaper access to masks for the general population

- no mask shortages in critical infrastructure such as hospitals or other health care institutions

- general better handling and health outcomes during the pandemic

Leave it to the Americans that would consider sound policy and good health outcomes stalinist or communist recipes.

Exactly there’s a “guilty by association” fallacy here.

1. You want the government to control production of some resources.

2. Stalin controlled production of some resources

3. Stalin killed millions of people

4. Therefore, you want to kill millions of people

No, there is only "knowing that communist central planning always ends up in shortages".

See here https://news.ycombinator.com/item?id=19970544 for an example that illustrates the point nicely.

"Some central planning" does not mean "communism".

On top of that the US and Germany had the same ability, it just that they were extremely slow in their decision making.

When they finally made that step it did help. Incompetence caused scalpers to rise and profit while the rest suffered until the Government finally got their heads out of their asses.

Nothing about stalinism or communism in here. Just general incompetence.

This actually is the idea with truly “free market” thinking, no? The money wasted in a crisis, and the companies killed who would’ve otherwise limped through, is all assumed to be less waste and a better outcome than the alternative we get if we prevent scalpers and/or cap the prices. In this theoretical world, we waste more money when supply runs out too fast, and we get companies that are not as good at competing because they limped through.

The big question economically is whether these assumptions are generally correct. We have evidence in both directions, enough that most people can comfortably stick to their opinions and learned assumptions and political tribes. But is there a way to demonstrate that the money wasted is greater with hoarding/scalping than without, and under what conditions?

Actually the original ‘free’ in free markets meant free from economic rents

Sure, but that’s not what it means anymore, right? Today’s “free” means no regulation.

Yeah now it means “free to capture economic rent” almost the exact opposite.

Ah, that makes a lot more sense than the generalised freedom I’d assumed.

I really should read Wealth of Nations…

> And even if you think that this kind of market culling is fine, I'm not seeing why all that money should go to the first asshole who managed to secure a large loan in time to buy off the entire stock of some good.

Very well said, but I'd go even further -- scalpers know other scalpers will do the same and create artificial shortage so they are actually preying on legitimate customers, so there's an adversarial component to the behavior of scalpers as well.

We rationed toilet paper during the lockdowns and there was a legitimate reason people were hoarding it, but we do nothing about scalpers who have no legitimate reason for their behavior.

In reality the market isn't a zero sum game. And there isn't a fixed supply of resources. In a crisis scalpers ensure that the customers receive critical goods that may otherwise be unavailable at any price. Not having that option could kill a company just as well. All of the profit money doesn't go to the scalper either, the original manufacturer can sell for higher prices, reallocate resources to make what is most profitable and meet the demands of the market. And there are price gouging laws to limit this activity for essential goods in an emergency.

If it is about “being the first” then obviously the pricing by the manufacturer is inefficient. In the end the scalpers you describe just fill in the void that is opened up by the manufacturers not adjusting their prices to the demand.

"No offense, but it sounds like some commie gobbledygook to me." ~Norm Macdonald

They can only do that by holding onto to supply which makes shortages worse. The same thing happens with ticket scalping at concerts, the difference is it’s more obvious that a sold out concert has empty seats vs supply sitting in a warehouse on the off chance it can be sold at 100x prices.

Empty seats mean someone screwed up but how can you tell that a group of empty seats is unused due to a scalper, versus some group of people who couldn’t make it?

When speculators don’t screw up, one fewer part being sold now means one more part that can be bought later. Delaying sales of some parts makes the shortage worse earlier and better later. Keeping inventory is a service to people who didn’t plan ahead.

Sometimes people do screw up, buying things that are never used, so they lose money due to the waste. But you can’t assume they’re all screwups.

Your right concerts make it hard to tell why seats are empty however unsold inventory is part of the basic business model of reserving a section of supply at higher prices not simply a mistake.

Airline seats are a better comparison. Airlines keep raising prices as inventory gets sold and flights near. However, that approach means they generally fly with significant unused excess capacity. The reverse approach where prices got cheaper as the flight neared would result in increased occupancy though significantly less total revenue.

The discrepancy shows up because buyers may be willing to pay radically different prices. A business traveler may be willing to book a last minute seat at 3x the price a holiday traveler who’s booking 6 months in advance. Hypothetically, making a 50/50 bet on a 3x sale is clearly a good idea but it means 50% of the time that seat sits unused.

That needs to be sourced from somewhere; the classic understanding of airlines is they usually overbook [0] and rely on people not turning up.

In fact, the whole "lets not sell our inventory, we'll make higher profits!" idea here is suspect. The idea that having unsold inventory in the model is a good idea is just false; having inventory left over is always undesirable. If it was sold at the last minute then they would have more profits. The scalpers are incentivised to minimise leftover inventory to the point where it isn't going to be a big deal.

[0] https://www.travelperk.com/blog/overbooking-airlines-quick-g...

It isn’t a question of what happens on specific flights, it’s a question of what happens generally. Global load factors are ~85% which is a long way from constantly overbooked.

Pre pandemic to get a normal picture: https://www.airlineratings.com/news/packed-planes-new-normal...

Low cost US carriers have a load factor of 90% that’s a trade off between fixed aircraft size and variable demand. However, US carriers only average a load factor of 86.5% meaning legacy carriers like American Airlines have a below 86.5% capacity factor and that difference between 90% and ~85% is exactly the optimization I am talking about.

I'm guessing that is a statistical artefact. They'd be running routes that are completely packed in one direction and not so full in the other due to seasonal effects or due to day/night cycles. So even if they were trying to overbook they'd still have quite empty planes much of the time.

85% capacity use of an asset is really quite high. If they managed to achieve mid-high 90s that would be startling given how good humans are at missing flights and changing plans.

To repeat myself, if the plan is to leave your capital unutilised for 15% of the time, on purpose, when there is an alternative, then the planner is a lousy capitalist and doomed to soon be a broke one.

> I'm guessing that is a statistical artifact.

No, it’s a difference in business models. Low cost carriers approach things very differently. https://youtu.be/1-uNMj57Y4c

It’s not that their wasting this 15% of their unused seats airlines are simply more profitable with this pricing model.

“While you might expect the airlines to lower their prices a few days before the departure day to occupy the last seats, the opposite is true: Selling 20% of the remaining seats for $1,500 is more profitable than selling half of them for the regular fare of $550.” https://flightfox.com/tradecraft/how-do-airlines-set-prices

Further that’s a statistical average, they might not have any last minute travelers on flight X or they might sell out flight Y 1 hour before departure. As airlines can’t both raise and lower prices at the last minute they A reserve seats for the possibility and B frequency lose the gamble.

Well, sure, but that is assuming that the market is exactly 85 people. If we hold the number of people fixed and it is impossible to sell all of the inventory then holding back inventory is much more effective - because we have assumed it is impossible to sell.

The hypothetical in that article would make more money if they sold 80 seats at $495, 15 seats at 900 and then 5 at $1500 (that makes $60,600). There are strong incentives here to fill the seats.

And they are doing the scalpers trick where someone desperate to get on the flight can. As opposed to when the good would be overbought and someone willing to pay $1,500 has to start paying off passengers for their booking instead of giving more money to the people who put planes in the sky.

Plus, if we're both running this strategy, I have huge incentives to offer $1,495 seats to steal your high paying customers off you. It just doesn't work as a strategy unless it is already impossible to fill the plane - which is quite likely the case.

No, the math works fine. Ignoring baggage fees and first class vs catch etc. If you have a flight with 300 identical seats and you could sell everyone single one of them for say 100$ and that’s your maximum possible revenue from a single price point. Now the question becomes how do you capture value from people willing to pay more than 100$? You can play some games with round trip tickets and minimum stays, but again let’s ignore that and just focus on the ramp up.

If you designate say 75% of your ticks at a lower price of X then some people willing to pay more will just buy at that price. Essentially the trick is to minimize people who are willing to pay more who end up buying cheaper tickets. And it turns out people booking close to the flight are generally willing to pay more. Sure six months out they still sell off up to 75% of tickets at ~100$ raising or lowering prices based on demand so their losses are limited if nobody else buys the ticket the flight is still mostly full. But at that 75% they start the ramp up and they also ramp things up as the flight gets close.

2 weeks out they say all tickets are 200$ even if some of those 75% are unsold. At the last day bump it to 400$. If over 1 month we can ignore seats at 100$ because that’s unchanged. Sell 1,000 seats at 200$, and 500 seats at 400$ and fly with say 1500 empty seats that’s 400,000$ where you would only make 300,000$ if all 3,000 seats where sold for 100$. But what if they dropped prices at the last hour? Well most of the time they have empty seats so many would avoid the 400$ ticket and would tend to wait around for that window especially for flights from A to B leaving every hour. Peak prices are a game of chicken and they can’t blink or they lose billions in revenue.

This is of course heavily simplified but it does demonstrate the basic trick I am talking about where they extract value from unsold inventory.

You're running in to a pretty fundamental problem with the maths here - if we have Retric-Air and Roenxi-Air, Roenxi-Air is going to be making more money because my plan is to copy your plan then sell a couple of extra $100 cheap tickets to fill the plane up. Your strategy is completely dominated by a strategy that just does that and sells a few more tickets. You're segmenting the market, I'm segmenting the market and fully utilising my capital.

I can tell you why the airlines would be planning on having empty seats in practice - because there are sometimes literally not enough people interested in travelling to fill the aircraft, so they adopt a strategy of leaving empty seats because they have no other option. If you've ever flown some god-awful connecting flight at 2am you might have seen that in action yourself. But that isn't because the airline is choosing to reserve seats, they'd much rather have more passengers - that just isn't an option.

> copy your plan then sell a couple of extra $100 cheap tickets to fill the plane up.

How and or when exactly to you plan to sell those tickets?

Do it after the price hike and people will just wait.

Do it before and you need to see the future to know how many seats will eventually be sold otherwise you just traded a 400$ ticket for a 100$ ticket. It’s no more a viable option than suggesting it’s easy to win the lottery just pick the correct numbers.

I agree with the logic; it would need to be before. I'd use statistics and a team of actuarial types to try and get the numbers right. It wouldn't be perfect, nothing ever is.

Your strategy has the same problem - you have to predict how many last minute travellers there are too. If you just leave an unnecessary buffer then the strategy fails. The one of us who does a better job of putting exactly 100 bodies in 100 seats - none left over - is going to have a more profitable airline. That is somewhat core to the argument us pedant capitalists make.

I completely agree they would try and maximize revenue by selling as close to the correct amount of tickets as possible.

It’s just the math works out so on the margin having even slightly better than a 1 in 4 chance of selling at 4x the prices is a net gain. Suppose their reserving 50 seats and have a 26% chance of selling all 50, only a 50% chance of selling 20 or more.

That means on 1/2 of flights their intentionally flying with 30 or more empty seats, but reserving even 49 seats rather than 50 loses them money.

Fair enough, my explanation was simplified and yield management is complex. Planes are full so airlines seem to be be doing better at it, though.

What raises the difficulty is that tickets expire - not a problem with selling electronic parts, though they do eventually become obsolete.

this is false. the supply would be gone at those low prices. Now they can be had for those who want it badly enough.

Your statement is false. Demand would be met with an increase in supply, satisfying all needs for the product and without the "help" of scalpers who sidestep supply-and-demand by artificially creating scarcity to drive up demand for their own profit. This is no help to anyone but themselves.

If there's a legitimate demand that will be used, then there's a good case for production to be increased to meet such demand, and all parties who need something would have their needs met.

At no point to scalpers make this system more efficient – they just serve to extract a greater profit from consumers and businesses for their own benefit by the aforementioned artificial scarcity that they make. This is also known as cornering the market, a well-known and despised practice that has been frequently used by morally corrupt individuals who sought only to benefit themselves. Nowhere can nor should the argument be made that scalpers help anyone but themselves.

> Demand would be met with an increase in supply, satisfying all needs for the product and without the "help" of scalpers who sidestep supply-and-demand by artificially creating scarcity to drive up demand for their own profit. This is no help to anyone but themselves.

There's no "artificial" demand. Think about it - the "scalper" isn't going to buy something that they can't sell on, they'd just lose money that way. (Maybe some of them make bad judgements - but they'll naturally go out of business in that case).

> If there's a legitimate demand that will be used, then there's a good case for production to be increased to meet such demand, and all parties who need something would have their needs met.

"Scalpers" improve the quality of that signal and make it easier to increase production with confidence.

> This is also known as cornering the market, a well-known and despised practice

Views on true corners are certainly mixed (there's an argument that it punishes dishonest market makers), but in any case it only applies to buying up the whole supply, which no individual "scalper" does or can.

Think about it - the "scalper" isn't going to buy something that they can't sell on, they'd just lose money that way.

The only reason they can sell something on is because they created an artificial scarcity of the thing. If widget X has a well-matched supply and demand, and a scalper decides to buy 10% of widget X, then 10% of the demand is now unmet, some of the buyers go out of business, and the maker of widget X now has 90 something % of their previous market.

> The only reason they can sell something on is because they created an artificial scarcity of the thing. If widget X has a well-matched supply and demand, and a scalper decides to buy 10% of widget X, then 10% of the demand is now unmet, some of the buyers go out of business, and the maker of widget X now has 90 something % of their previous market.

If that happens, then the price drops, and the "scalper" loses money - demand has some elasticity, and a healthy market has some slack in it. Momentum-trading speculation works sometimes, but anyone who uses it as their sole strategy will go bankrupt sooner or later.

> The scalper isn’t going to buy something they can’t sell on

That assumes they have perfect information which they don’t they can only estimate demand. It’s perfectly rational for a scalper to regularly purchase more tickets than they sell due to the kind of markup their looking for. At say 4x they could on average sell 1/2 the tickets while doubling their investment.

And of course that assumes they never run into logistical issues.

1. No one assumes that they have perfect information. No one says this is perfect just better than the other ways to handle these situations!

2. Who do you think will consistently have better information than someone whose sole goal is to sell these tickets?

3. If they are consistently losing money scalping and not selling tickets they won't be a scalper much longer.

4. This is a dynamic process which can account for changing variables regarding supply and demand quickly as opposed to rules and regulations which do not.

5. If they only sell half the tickets at 4x then they could sell the last half at an extreme discount and make even more than double their investment! Do you think they would rather make more money or less?

For 5. consider the diamond industry as a real world example of an industry well renowned for aggressively limiting supply.

Scarcity can drive price upwards in an exponential way that ends up making it optimal to not sell all inventory. Sure in an ideal world you would sell everything you can for the maximum price but in the real world the buyer is incentivized to wait until you offer your minimal price.

> It’s perfectly rational for a scalper to regularly purchase more tickets than they sell due to the kind of markup their looking for. At say 4x they could on average sell 1/2 the tickets while doubling their investment.

True, but in that case they've added more value than they've subtracted. That artists insist on pricing every concert to sell out is a big part of the problem here; you'd get a more functional market by accepting a few empty seats to give some slack.

Bands want to present the appearance of a successful band, it helps their image. A filled stadium is part of that, so yes they can make more money today by raising prices but that’s making real trade offs.

Except increase in supply in chips takes 3-5 years

"This is false" isn't much of an argument. If there is an argument, you should probably provide that instead...

It depends on what is causing the lack of supply. If the bottleneck lies in factors beyond the control of consumers, i.e. discontinued production, or shortage of raw material, then I see no inherent issue with scalping. But if it’s the scalpers themselves that cause an otherwise plentiful supply to become scarce, then they are the cause of the shortage, rather than the effect, and their behavior should be curbed. The problem is that the former situation can easily lead to the latter via a panic buying feedback loop, and it’s not entirely clear where the distinction should be drawn.

They could only do that by cornering the market, but if there are many competitive scalpers, then the price is right and that's just normal supply (at the source supplier, not the scalper) and demand.

Except that your markets are not perfect, your scalpers have overhead and now represent a middleman who wants their cut.

If the buyers could participate in a bidding market directly at the supplier, there would be no need for this overhead. The overhead you speak of is the cost of running a liquid market for a particular good where none existed.

Negative. Like scalping everywhere, they're middlemen who contribute nothing to society, and make it more difficult for people who do.

So, you may be right about scalpers providing nothing to society. But you are absolutely wrong about middle men in general. At a super high level, they have to provide value else they would be short circuited. Very often this value is in knowledge, both product knowledge, customer knowledge, and market fit. A good middle man can tell you that the thing you think you want won't fit your needs as well as some other product (bonus points if the product isn't something they personally sell). You will also find a high correlation between the health of an economy, and the number of middlemen present. It's actually something that has concerned me in the US for several years, that too many companies have been squeezing out the middle. I think it's exacerbated the current supply chain issues.

Middlemen are good if they unbundled and directly charged for their services and did not act as arbitrageurs simultaneously. Middlemen who withhold information or resist competition are rent seeking, which is a strictly negative utility for society.

Some have argued that scalpers, like other risk arbitrageurs, accelerate market price discovery. If you buy the argument that markets are net positive for society by relaying information about economic trade offs, scalpers aren’t necessarily bad even if they are indeed annoying to market participants by lifting the ask. Of course there are extreme conditions where we also might decide that using money as the universal conveyance of value is a bad thing because it reveals how unequal outcomes in society have been… And the usual response is to shift to rationing rather than price to allocate scarce resources. But with rationing you get sidechannel markets and not necessarily efficient allocations.

This argument feels wrong to me. If there is a market for the chip, it will find a market price. If there isn’t there isn’t. If the market is in an equilibrium and the chip manufacturer makes some money on their chips, and the chip buyers make some money on their products, the a scalper coming in and sucking up all the profit isn’t doing anybody in the world any good except themselves.

The scalpers don't suck up profit, since if there is a functioning market, you can't really scalp.

Scalping exists when there is a discrepancy between a marked price and the market price of an item. If scalpers were not a thing, you would have shortages. With scalpers, you still have shortages, but you can acquire the good by paying a higher, market clearing price.

That higher price either makes it so that rich people can get the thing (most don't like this), or that people who really need it can get it (i.e. lifesaving medication etc). So your view of scalpers might be influenced by the distribution of (1) and (2) going on.

Sure, I get all that but scalping is still in essences a leeching practice.

And yes they can suck up profits, that’s their whole thing. Are you saying that profits can’t exist in a functioning market?

My observation is that you mostly get (1). And this is also why wealth inequality (both on a personal and a corporate level) is so bad.

Equilibriums don’t just happen by themselves. When there isn’t an equilibrium, delaying sales by keeping inventory helps the people who didn’t plan ahead.

The ant planned ahead for the winter, the grasshopper didn’t, and the scalper provides a service to the grasshopper, for a price.

They provide short-term, non-committal inventories and buffers to a supply chain that doesn't have them, since it runs on long-term contracts. In some ways, they're capitalizing on the failures of just-in-time inventory dogma

The chips would have been sold in any case!

They're taking advantage of some fluxuations to make money for themselves. That isn't helpful for the producer nor for the purchaser of the goods.

This isn't people setting up futures for 555 timers. This is people scooping up PS5s and immediately selling them for an extra $200.

Of course it's nobody's god-given right to own a PS5 but there's not value being produced here.

Well, they provide value. They make it possible for people/entities who needs things the most to actually get them instead of those who happen to be first in line or in lucky position to get access to supply.

Correction: they make it possible for people/entities who can afford to waste most money to get them instead of those first/lucky. But how is that a better outcome? And why should this involve people spending more money, and all the delta going to the person who was first in line or in lucky position to secure a loan and buy off all the supply?

> they make it possible for people/entities who can afford to waste most money to get them instead of those first/lucky. But how is that a better outcome?

It's not "waste", it's the people who are willing to spend the most money, which are presumably the people who want/need the thing most, so it's better than allocating the thing at random.

> And why should this involve people spending more money, and all the delta going to the person who was first in line or in lucky position to secure a loan and buy off all the supply?

The person who makes a good judgement about what things are underpriced is selling a service to the market and earning their cut. A seller who's paying attention should see the rush and raise their prices (and ideally increase production to match that).

> It's not "waste", it's the people who are willing to spend the most money, which are presumably the people who want/need the thing most, so it's better than allocating the thing at random.

It’s not a waste, but it’s not best allocation either. It seems like the chips will go to established players with large and cheap credit lines and ossify the market even more.

The scalpers are not like market makers who are regulated, provide both bid and ask, and whose spread is usually quite small in comparison to scalpers.

https://www.investopedia.com/terms/m/marketmakerspread.asp

> It’s not a waste, but it’s not best allocation either. It seems like the chips will go to established players with large and cheap credit lines and ossify the market even more.

Credit is cheap, and there's no particular barrier to entry (unless we're talking about things like backroom deals with concert promoters, which I'm sure does happen, but isn't an essential part of the business), so I'd expect this to be a fairly competitive market.

> The scalpers are not like market makers who are regulated, provide both bid and ask, and whose spread is usually quite small in comparison to scalpers.

Market maker regulation is relatively recent, and market making is recognised as having served a beneficial function long before that. Many of these ticket sites do list bid prices for your tickets as well. The spread is pretty wide compared to listed equities that trade hundreds of times a second, sure, but if you compare a single concert's ticket with a stock or bond that trades at a similar rate (which would be, like, the bottom end of the pink sheets) it's not so bad.

Scalpers allow people who are not price sensitive or have inelastic demand priority over people who are lucky / first.

The ethics depends on the exact case study provided. If it's a rich person buying an xbox (not price sensitive) - that's one thing, and most people would not support it. If it's someone needing an IC for a heart monitor to stay alive (inelastic demand), most would say that providing them an IC over someone who wants to play the latest video game is a good service.

Scalpers do both (1) and (2).

Scalpers only do (2) for those who can afford it. If scalpers were willing to hand out goods on the merit of the application rather than profit then I’d have much more sympathy. But then they wouldn’t really be scalpers anymore.

I’m willing to bet that scalpers starve critical applications of goods far more than they provide them. Providers of critical services are usually poorly funded.

Or maybe they are price sensitive but the goods are just worth more to them.

The scalper can't distinguish between a poorer person who really needs a thing, and a richer person who just kinda wants it. They will happily price out the former before the latter gives up.

There seems to be an assumption in the discussions about the market that people don't do stupid shit with money. That the same good cannot be both life-critical for one, and a source of cheap entertainment for another. That people only ever spend money to make more money. That they are perfectly consistent over time. That nothing is ever time-critical, it may be only time-discounted.

But the reality is, people are irrational, things take time, and markets have inertia. In a scalper-managed shortage of critical medication, it's perfectly possible for a rich person who watched one too many end-of-the-world movies to buy up the supply at high markup, to stock their fallout shelter, and have it rot there while people who need it die. It takes time for a chip scalper to insert themselves into the market, buy up the supply and advertise their existence - in that time, the factories might be wasting megadollars of money.

> Well, they provide value. They make it possible for people/entities who needs things the most to actually get them instead of those who happen to be first in line or in lucky position to get access to supply.

True - they also take on some risk of being stuck with inventory that they can't resell at a profit (if prices drop between when they buy and sell).

Ethically scalping feels wrong, but I think ethics aside, scalping does provide a service to the market.

> Ethically scalping feels wrong, but I think ethics aside, scalping does provide a service to the market.

Yeah fuck ethics, there's profit to be made.

> Scalpers are not the problem as they seem, they are like market makers for stock exchanges. They buy low and sell high, always.

How do you feel about scalpers who do not act in scarcity but instead create the scarcity themselves. Like those who buy up land in popular cities?

Except this is not really what market makers do. The amount of liquidity they can provide by buying high and selling low is quite limited, not to mention it locks up a lot of capital in market price speculation with the significant risk of 'getting it wrong'.

Without going into motivation behind why ($$$), they will sell any share in demand at the prevailing market rate. As long as they later buy the same number of shares that they sold into the market, everything continues to work. By internalizing and batching orders, they can also exhert force on the price to ensure they don't lose on these 'market making shorts'.

For your example to be equiavlent, scalpers would need to sell parts that they don't have, which falls apart as an analogy as such games would fall apart quite quickly during a supply crunch.

They are similar to a market maker but it's not the same. They are like predatory HFT, benefiting from fast information propagation. Most of the time the market would function well without them, with much less volatility in the price. In that sense, scalpers en masse are destabilizing the economy.

> The point is, it's better to have the option to buy something at a high price

On a macro level this doesn't change anything (besides distribution in a limited way), as this doesn't increase production, or am I missing something?

You ignore that a scalper can easily slip counterfeits into the mix. An authorized reseller would be ruined if they did that.

You are literally defending unnecessary middlemen. They add no value, all they do is create artificial scarcity. If they didn't exist someone would have made use of the chip. Instead they hoard it. I don't understand why you find this ok behavior

They make supply chain validation problematic and introduce room for fraud. Not saying market making is bad, just in this case loosing supply chain validation may be worse.

Scalpers hedge on the fragility of just-in-time - they milk the short-term thinkers for all they saved in the good times and are thus a healthy part of the market.

Why do we praise people betting on actors being hurt by bad decisions like (https://en.wikipedia.org/wiki/Michael_Burry) but condemn the same behavior on the smaller scale of physical products?

Scalpers hurt anyone launching a hardware product who doesn't have the order quantity to buy direct-from-manufacturer.

I, for one, am happy that I can get enough parts for a prototype run even if at 5x the price.

Especially as otherwise, those parts would just get sold to the car manufacturers and would be used to make ethically questionable products.

I don't get how it hurts anyone to have to pay market rate. If your product doesn't work at market prices, then that's your problem - not scalpers.

This kind of perspective where any intervention-free (often equated with 'free market') outcome is ipso facto a socially good outcome is so frustrating because it transcends policy discussions into morality/dogma. Are you opposed to efforts to curtail rent seeking more broadly?

Making honest prices illegal is the most destructive intervention you can do. "Scalpers" aren't rent-seeking, quite the opposite.

I think you'll find most electronics products available to be unprofitable if they had to use these scalpers as suppliers.

Scalpers do hurt innocent consumers, which is why they are so widely hated. Someone trying to buy their spouse a GPU or a PlayStation for Christmas isn't the one responsible for a fragile just-in-time supply chain. Many times, the problem isn't even the supply chain, it's just the fact that demand exceeds the total possible supply, like with concert tickets.

In the consumer space, there are many ways for vendors and retailers to combat scalpers, but their motivation to do so is minimal. They make the same money off a GPU or PlayStation regardless of who buys it.

Well, I guess it would be hard to scalp on of the closest managed inventory processes around. Thing is, only the last steps before FAL are real JIT, everything else is pretty much running on, more or less well amanged, inventory. Also, blaming the chip shortage exclusively on automotive and their mismanaged JIT is quite a theory, and an overly simplistic one.

Would they not harm also reguar manufacturers who just want to make a stock of some part before starting a manufacturing run ?

Question is if that really provides benefits for the economy though. For scalpers and the stock market alike.

General electronics yes, but automotive ICs are not in free sales and can't be stocked by 3rd parties. Also giants like apple, amazon,... buy directly from the manufacturers with orders being made often a year in advance.

This shortage is so big that the 3rd party scalpers are insignificant contributor to it.

> Having scalpers in the mix raising the price for all components worries me that the chip shortage might not end for many years, as they can self-fund by raising their prices to stock up on new supply.

How do the scalpers get the supply before someone else gets it? What do the scalpers do when IC manufacturers increase supply and electronics manufacturers decrease demand by switching to similar components? What if one of the scalpers panics, dumps its inventory, and causes a price drop?

The whole situation could just as quickly turn into the opposite when production returns to normal.

Tough. Then run a fab or start carrying inventory.

Just-in-time and fabless had risks that everybody simply ignored over and over. I'm happy to see companies taking it in the shorts for that.

Everybody loves the "free market" when it works in their favor and whines when the same winds turn around and bite them in the ass, personally.

Why do the scalpers get first dibs on the supply?

That's the right question. As Huang said a few years ago: the more you buy, the more you save

In concert ticket sales, scalpers get preferential treatment because:

1. nepotism: they know someone who works at or owns part of the venue, or the performer, or the performer's manager, etc

2. they reliably buy in bulk

3. corruption: they pay off someone on the inside.

so which is it here?

4. The scalpers are the same company that sells the tickets.

> As Huang said a few years ago: the more you buy, the more you save

This is what wholesalers do: they buy large quantities at low prices and then sell small quantities at high prices.

Wholesalers' key contribution is distribution though. They have actual infrastructure and do real work that is actually useful. They also do this continuously, providing a stable service, and not just sometimes to get in on some market swings.

I really enjoyed this comment and the thread it started. I wrote some thoughts as a little blog post, and would welcome any thoughts or contrary opinions (I'm no expert, just thinking out loud).

https://rabbitsbynight.notion.site/Scalping-vs-price-gouging...

What's the difference between scalpers and Digikey hypothetically raising their prices sixfold?

It's better that the producer gets the correct price for their items. That way they can invest in their infrastructure or bid up source materials, getting closer to being able to meet demand. On the other hand profits going to the scalpers doesn't contribute towards fixing the problem.

Digikey isn’t a producer.

Scalpers - and others willing to pay a premium from the supplier - will in all likelihood (IANAEconomist etc) cause a whiplash / bullwhip effect; scalpers create high demand, manufacturers increase production and continue to do so until the market is saturated, then suddenly the scalpers have huge stocks of e.g. chips and can no longer sell them at a premium, making them drop prices to match the manufacturer's.

I think this would be against the law in the U.S. (although probably hard to prosecute). After looking through a few of these, however, it looks like most of them are in other countries, so different laws apply.

Against what law? Isn't speculation pretty normal in a lot of markets?

There are laws against price gouging. I believe those only apply during emergencies.

Personally, I believe it's manufacturers not asking for the price the market is willing to pay and scalpers taking advantage of that. Charging real prices also can prevent hording in certain emergencies.

Manufacturers aren’t always able to charge real market prices in a flexible way. They rely of regular reliable order volumes and can’t charge different prices to different customers, and can’t vary prices easily day to day so can’t take advantage of the fact different customers are willing to pay different prices. They also often don’t have distribution and extensive dispersed inventory, so can’t offer different prices to different geographic markets, or different markets with particular volume requirements, or different order/delivery latency tolerances.

There is no better wat to encourage additional production/reuse/alternatives. Shortage just tells binary signal, prices lets you actually esimate how much this and that will cost.

> One important part of the chip shortage is the massive amount of price gouging going on.

There is no such thing as "price gouging".

It just so happens that at this moment the price of things is higher than it usually is due to increased demand and reduced supply.

Price gouging is a real thing and "the price of things is higher than it usually is due to increased demand and reduced supply" is actually part of it's definition. I.e. price gouging isn't a replacement for the supply/demand model rather a description in certain extreme cases of said model, often regulated cases depending on the jurisdiction.

Traditionally it referred to traditional survival items though, not just any item.

Increased demand doesn’t increase prices on its own. The seller also has to Choose to sell at the higher price.

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