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.
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?
I really should read Wealth of Nations…
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.
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.
- 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.
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
See here https://news.ycombinator.com/item?id=19970544 for an example that illustrates the point nicely.
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.
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.
Good luck finding anyone willing to recognize this absurd point.
> "the problem is low competition"
Tell that to the GPU market.
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.
Scalpers at least ensure you can get it of you really need it (that is willing to pay a lot).
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.
Do you mean that you think it's absurd but you don't disagree that scalpers perform a social service?
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.
Those assembly lines are highly specialized and extremely efficient. After all this time, the best they can do is 1% extra efficiency per month.
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.
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.
Your thoughts on that?
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.
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.
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.
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.
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.
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?
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.
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.
- 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.
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?
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)
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.
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.
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.
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.
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.
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.
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?
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.
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.
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.
What raises the difficulty is that tickets expire - not a problem with selling electronic parts, though they do eventually become obsolete.
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...
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.
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.
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.
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 $1,495 seats to steal your high paying customers off you. It just doesn't work as a strategy unless it is already impossible to fill the plane - which is quite likely the case.
If you designate say 75% of your ticks at a lower price of X then some people willing to pay more will just buy at that price. Essentially the trick is to minimize people who are willing to pay more who end up buying cheaper tickets. And it turns out people booking close to the flight are generally willing to pay more. Sure six months out they still sell off up to 75% of tickets at ~100$ 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.
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.
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.
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.
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.
The ant planned ahead for the winter, the grasshopper didn’t, and the scalper provides a service to the grasshopper, for a price.
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.
And yes they can suck up profits, that’s their whole thing. Are you saying that profits can’t exist in a functioning market?
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).
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.
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.
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 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.
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.
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.
Yeah fuck ethics, there's profit to be made.
/s
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.
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?
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.
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?
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?
Especially as otherwise, those parts would just get sold to the car manufacturers and would be used to make ethically questionable products.
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.