In Defense of Scalpers
Adam Shen
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Around a week ago, I was scrolling across social media when I saw this post.
I personally haven’t really played console games in a while and therefore am not that up to date on the developments. However, at the very least I do know that the new-generation PS5 is very much demand, vastly outstripping the rate at which retailers can restock. Unsurprisingly then, we see posts like this where scalpers get their hands on a unit and then resell it at a price much higher than the system’s MSRP of $500 or $400 for the disc-less version.
To me this isn’t surprising. After all, basic supply and demand dictates that if there’s a lot of demand and limited supply, the price will go up. In this case, it isn’t Sony who’s increasing the price, but scalpers buying the system and reselling them at a higher price. However what was slightly surprising were the comments that I found in towards the seller.
Now, I get it, the work that scalpers do isn’t exactly the most charitable. However, in order to have an efficiently functioning market they are both necessary and inevitable.
If you’re a 12-year old child who found out that you’re not getting a PS5 for Christmas because they are sold out and your parents can’t afford to pay $1200 for a resold console, I can understand your frustration. I guess it is also somewhat understandable for ~20-year old college students (which is the primary demographic of this page) to also be infuriated about this. College students are stereotypically poor. We are also in the middle of the COVID pandemic which means gaming is one of the few ways they can responsibly entertain themselves. However, what I can’t understand is why people think that doing this is morally wrong and, facetiously or maybe not even facetiously, wish harm upon the seller.
Typically, I don’t really like posting / commenting on social media, with the exception of tagging my friends in memes. However, in this case, I couldn’t help myself and came to the seller’s defense.
Shortly afterwards another individual, not unexpectedly, rebutted my claim. This led to a series of exchanges arguing on the morality of scalping, allowing wealthier people to pay a premium to access goods earlier than others. Later on, some other individuals also chimed in with their thoughts too.
The comments are a pretty good summary of the ideas and arguments on the topic. However, there were some additional ideas I wanted to introduce and hammer home, hence this post. The way I will structure this is to consider the reasons why many people think that scalping is wrong and then argue why these are not good reasons.
Arbitrage Profit
In finance, arbitrage is an act of buying and selling something for risk-less profit. I get the impression that many people think that arbitrage is somehow wrong in that it isn’t right for people to make money without risk and cost. My first point is, why do people think this is wrong? In any complex environment, these opportunities are bound to occur as there’s simply too many moving parts. If arbitrages do occur, they typically do not last very long and are not very big. Not only that, it is actually due to the work of people looking for arbitrage that other consumers can be reasonably assured that whatever they’re paying is roughly fair and in line with what everyone else is paying.
With all that being said, this situation is not even arbitrage! The key word in arbitrage’s definition is “risk-less”. Buying and reselling consoles is not risk-less! There are inventory risks and costs of actually having to store and transport the console. For example, the console can be stolen and/or damaged. Ironically this was pointed out by many of the negative comments. There’s also price risk. Although this seller is asking for $1200, there’s no guarantee that he’ll actually get $1200. It is very possible for the market price of the console to drastically move lower. Lastly, there’s always the negative social cost of having random strangers on social media heckle you :).
Effortless Profit
Another common argument on why doing this is unfair is that the profit earned by the seller is coming too easily. After all, how can it be fair that this guy gets to make $700 simply by being first in line to get the PS5 while other people have to work several dozen hours for the same amount? For the same reason why arbitrage isn’t wrong, effortless profit isn’t wrong necessarily wrong either.
Also like perceived arbitrage, scalping profit is not effortless either. To really make this easy to understand, simply ask yourself the question, “If this profit really was effortless, then why didn’t I do it?”. A common response may be of not being aware of when / where the PS5s were going on sale. Well, then the next question to ask is how would one have gotten, and in the case of the PS5 seller did get, this information? The answer is they likely had to put in considerable time and effort in researching this! Even after compiling this information, there is still the issue and cost of physically getting the console. For example, one common method is to stand outside in the cold for several hours, which for most people is not an effortless activity.
Another method is ordering online. However, this involves diligently refreshing the website around launch time and hoping can checkout before stock is gone. Oftentimes though, this isn’t good enough as shopping bots will snipe the inventory way before any human’s slow fingers can even react. So are shopping bots immoral then? No, because someone had to take the effort to actually create the bots. Again this sucks for the people who are unable or unwilling to do this. However, this is no different from any other industry or situation, and as mentioned in the comments, would be a direct attack on free markets.
People are free to allocate whatever time they have into whatever activities they wish. If you’re frustrated about snipers snagging the console, then one potential solution is actually teaching yourself how to do it as well.
I was originally going to put in a brief rant about free markets, economic inefficiency, and the over-emphasis of working hard vs working smart. However, as I started writing that section, it got progressively longer and longer so now, I’m just making that into its own post.
To summarize, I’m sure some people were lucky and just happened to get a console without prior knowledge and preparation. Additionally, maybe some other people got a system by having prior connections. For example, the owner’s of a Best Buy franchise may be able to secure one for their kids. However, do you really think that these are the types of people who would take the effort to try to upsell a console after receiving one? Maybe a few would, but I would guess that most wouldn’t.
The Ridiculous Premise of Discrimination and Price Anchoring
A sentiment that was particularly prevalent in the comments is that scalpers charging a big premium is discriminatory against less wealthy people, which keeps them from enjoying the new console. I think the comments already do a pretty good job refuting why this is not completely accurate. However, at second glance, I realized that the premise of this argument was much more ridiculous than that!
If the PS5 is expected to be priced at $1,200 forever, then I can understand the frustration of many individuals who want it as that is pretty pricey for a console. However, that is not reality! If you can’t afford $1,200 now, you literally just have to wait a few months for new shipments to arrive and pay the MSRP.
Yeah, it kind of sucks that your wealthier peers get to play on it before you do, but at the same time, it’s not like anyone is denying you the the privilege (or maybe right if you really do feel that you’re entitled to own a PS5) of ever having owning the console. Upselling early access for early is not an uncommon business practice that people generally don’t mind. In fact, when it’s done implicitly, people don’t even notice, like how 4K televisions were extremely expensive originally, but eventually came down in price.
I get the feeling that people feel this way due to their anchoring bias to the original $500 MSRP and release date. However consider the situation in which instead of releasing their PS5s for $500 in fall of 2020, Sony anticipates the shortage and instead creates an “Early Access Special Edition” which they release for an MSRP of $1,200. This “Special Edition” is identical to the regular console with the exception that people can get it earlier than the revised release date of mid-March 2021 (and maybe it has a special color or something). Notice how for a consumer, this is equivalent to buying the system from a scalper; the only difference being that now Sony pockets the extra profit instead of a scalper. Because people will anchor to the MSRP as “fair”, they’ll likely find the second situation more palatable than paying a scalper. This line of thinking is completely irrational.
Closing Thoughts: Bad Arguments Hurt Good Purposes
I do appreciate and am inspired that people are on the lookup for inequity and ways in which we can improve it. However, there are intelligent and efficient ways to approach these problems as well as unproductive and illogical ones. Criticizing console scalpers falls into the latter category.
Especially if you are a fan of future progressive changes, this type of reasoning is not only unhelpful, but potentially even hurtful to your cause. Wishing ill-will towards your peers who are trying to turn a modest profit and arguing that everyone is entitled early-access to an expensive game console are the exact types of sound-bites that conservative pundits love to employ in order to fire up their core base and scare moderates.
Lastly for full disclosure, as of this time, I have not personally tried flipping consoles as I’m generally a pretty lazy person and would rather spend my time doing other things.
