It goes without saying, but I’ll say it anyway – these are strange and difficult times. With the pandemic raging and quarantine protocols widely in effect, there’s been discovery and revelation. It turns out that although cheap stuff is good, having large swaths of your supply chain based in an authoritarian, petri dish of a country isn’t so much.
But I’m not going to rag on Communism right now. Instead I just wanted to share my frustration and concern with what I’ve seen here in the good old US of A. I already ranted about this on Twitter, so I’ll try not to retread too much.
I understand the anxiety of people who can’t find toilet paper at their local grocery store, then pop onto Amazon or eBay and are horrified to see something like this:
“Price gouging!” they exclaim as they mash the “report seller” link.
We live in relatively soft, cushy times here. Now I’m not saying I’d like to wipe my butt with leaves and grass or the pages of old Daniel Steele books, but if I had to I could. And yet, toilet paper is considered an essential good. Ok, fine. It is what it is. There are no real comparable alternatives to toilet paper on the market (unless you count those flushable moist wipes, maybe?).
Hopefully someone’s working on those three seashells.
But you know what’s not an essential? A Nintendo Switch. Your favorite brand of pasta sauce. The complete series DVD set of Lost. Dumbbells.
To be fair, I think most news outlets I’ve read have been pretty straight about what “price-gouging” actually is. It’s the unfair price inflation of “essential goods and services.”
Part of the problem here is that words are hard. Especially subjective words like “essential.” It doesn’t help when the government gets to decide what “essential” means.
You really start to see the confusion and outrage on social media and in places like Facebook buying/selling groups. I can kinda get it – a mom or dad who’s confined at home thinks “It is essential for me to be able to entertain my kids who have been trapped at home for weeks and who I am stuck with 24-7 since I am now working from home. It’s bullshit that the video game system they want is selling for 2x the retail price!”
And I get it. It sucks. I really want to buy a Ring Fit Adventure, which was originally retailing for $80. But it’s been sold out everywhere for a while now, unless you want to pay up on Amazon or eBay and fork over $300.
Me, personally, I think “Gee, that sucks. Wish I had got one when they were available for cheaper. Guess I’ll wait and see if supply ever catches up with demand.”
But a disheartening amount of people seem to be thinking “This should be illegal. This must be illegal! Fuuuuuuuuuuuuuuuuuuu!”
Here’s the thing about reselling and resellers – while there are some unscrupulous folk and some shady ways of going about their business, by and large they perform a valuable service. You may not want to pay $500 for a Switch, but someone does and they are willing and able to pay. They may not want to leave their house, or maybe they live in a small town with few places to buy video games and consoles. And if you have $500, you at least have the opportunity to buy one online, too.
And how much money is that scummy price gouger making? He’s charging $500! He’s making hundreds off of poor parents!
Well…about that. Let’s assume the sellers is some dude who went to Target or GameStop when there were Switches to be had, and bought up 10 consoles.
First off, the guy just dropped $3,000 + sales tax. So assuming a 6% sales tax, let’s say he just spent $3,180 on 10 Switches. So there’s the initial capital that he had to save and plunk down.
Let’s say he is able to sell a Switch for $500 on eBay. $500 – $318 = $182. He’s also going to be paying eBay a 10% fee and Paypal a 3% fee. So now we’re at $500 – $318 – $50 – $15 = $117. And that’s not even accounting for shipping, which will knock off a few more bucks.
By charging $500, a reseller is making a profit of about $117 by selling a Switch on eBay. Amazon charges higher fees, so it would be less than that if they sold through Amazon. Selling all 10, he’s looking at about $1170 profit, then.
That’s not too shabby, and it’s a flip I would make. And yet, the guy’s not making a killing. A big part of the equation here is that most buyers don’t think about (or care about) the cost to the seller.
EBay and Amazon could help alleviate the situation somewhat by temporarily reducing seller fees, allowing some savings to be passed onto the end customers. But they don’t.
There’s also the risk involved. Buyers are rightly concerned about shady online sellers trying to scam them out of their cash. But it works both ways. There are buyers out there who will claim an item was received damaged or defective or that the box was empty, and the platforms tend to side with the customers in such disputes. Thankfully cases like these aren’t terribly common, but they do happen. Especially with high-value items like electronics. That’s a risk that a seller has to bear. They get scammed out of one Switch and all of a sudden they’re down $300 – almost 1/3 of the total profit they were expecting out of this batch.
Some people seem to think it’s unfair for them to pay above retail, or at least much above retail. So how much is okay? $350 for a Switch? Then the reseller would be making $350 – $318 – $35 – $10.50 = $4.50. Ah yes, solid work for $4 (let’s pretend USPS will mail that package for free).
But wait, if not for the resellers, I’d be able to get a Switch at Walmart! Possibly, but probably not. Sure, there were resellers who were able to drive around and snatch a bunch up. But right now demand for Switches is sky-high. This is not an artificially inflated demand. Nintendo just hasn’t been able to make enough.
If no one were willing to pay $500 for a Switch, prices would start to come down. Rather than sit and wait, some (re)sellers would gradually lower prices until they found a price point at which buyers would buy. And other sellers would follow suit……..
The point I’m trying to make is that there are a lot of people out there right now who support capitalism on paper, but not when push comes to shove. I think they don’t understand or care what “essential” means when it comes to price-gouging, they don’t know or care what “fair” means when it comes to either price-gouging or profiteering, and/or they don’t understand the basic economics of supply and demand.
5 thoughts on “Muh Switch! or “Pandemic ‘Profiteering’ and ‘Price-Gouging'””
Our collective economic illiteracy about “price gouging” is flat-out dangerous right now. If price gouging laws (and public opprobrium) were only directed at Nintendo Switches it would be no big deal. But it is undercutting our supply chain’s ability to deal with massive shifts in demand due to the lockdowns.
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Indeed! Basically anything people want they see as essential and are outraged when they have to pay up.
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This post, and the ills it highlights, are why I consider the United States doomed. A nation is only as great as the people who make it up and we now consist of stupid, selfish, out of touch with even basic reality people.
I’m at the point where I no longer think the government tearing up the Constitution is out of bounds, because enough people wont care :-(
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Yeah, it is disheartening. My hope is that we only slowly fade away, like Great Britain, rather than collapse in a biblical way.
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I hate giving numbers for this kind of thing, but I’d say the world is going to end in the next 20-30 years.
Unless my eschatology is completely out to lunch :-D