Lately, I've been trying to get my hands on a PlayStation 5. These are in pretty short supply in the UK these days – thanks to the chip shortage, and exacerbated by Ever Given, demand currently far outstrips supply. To get a PS5 from any retailer, you need to subscribe to and religiously follow stock alerts, read up on various site-specific tricks, and generally sink a whole lot of time and mental effort.

One thing that a lot of people believe makes this much harder is the presence of "scalpers": resellers who buy up large amounts of PS5 stock at every drop and sell it for large markups on eBay[1]. Since these resellers, unlike most retail consumers, are trying to acquire many PS5s across multiple stock drops, they can invest in various tools (chiefly, various kinds of bots) to make them more effective at winning these drops. As a result, an unknown-but-probably-substantial proportion of the consoles available at each drop go to these resellers.

If you have any experience of interacting with humans, it will not surprise you that a lot of people are very angry about this. My natural libertarian-ish response to this is to say these people are being silly – that this is just the kind of thing that happens when retailers are foolishly prevented (by public opinion, if not by law) from charging the true market price. But I don't like feeling like a dogmatic libertarian, so I'd like to dig into this a little more.

Even in the complete absence of resellers, I'm pretty confident that getting ahold of a PS5 right now would still be a difficult and costly proposition, requiring large investments of time and mental effort. For those who are willing and able to pay the marked-up price, resellers are thus providing a valuable service, allowing these consumers to pay money to avoid these costs. Having spent a few fruitless hours trying to win PS5 stock drops, the idea of paying someone else to do this is pretty attractive to me, and I'm sure I'm not the only one.

The main counter to this is that, by buying up large amounts of PS5 stock at every drop, resellers are making things (even) harder for those who are not willing or able to pay the marked-up prices. If you have strong egalitarian instincts, this might be enough to condemn these resellers as harmful. But even assuming that this would be bad if it were true, I'm not sure it is true – at least if you consider a slightly longer timescale than a single drop.

My economics knowledge is pretty meagre, but here's an argument for why it might not be the case that resellers hurt less-wealthy consumers in the long run:

  1. Unlike resellers, the great majority of retail consumers only want one PS5. Even those who want more than one (e.g. for birthday presents) probably don't want more than two or three. To a good approximation, then, every retail consumer who gets a PS5 removes themselves from the demand pool. From the perspective of someone trying to win a stock drop, everyone who gets a PS5 is one less person for you to compete with next time.
  2. Resellers wouldn't be posting PS5s at such high prices on eBay if they didn't sell at those prices. Given the high demand, we can assume that the great majority of PS5s bought by resellers are resold to consumers (albeit perhaps with some delay). These consumers then remove themselves from the demand pool, as above.
  3. If resellers didn't exist, most people who would buy a PS5 from a reseller would instead compete for stock drops, either directly or via some other indirect means. (I think this is the weakest premise of the three.)
  4. Hence, considered over multiple drops, competing with resellers is unlikely to have more than a small effect on your expected time-to-PS5-acquisition.

Two obvious ways this argument would fail would be if (a) there is a large amount of leakage from reselling, with many PS5s on eBay never selling for some reason, or (b) the availability of quick-but-expensive PS5s on eBay draws in a lot of buyers who would otherwise be unwilling to compete in stock drops, but would instead wait until PS5s were readily available via retailers. (b) seems much more likely than (a) to me.

However, given my lack of economics knowledge I wouldn't be all that surprised if there were some much more important flaw in my argument above that I haven't noticed. So, I'd be interested in hearing arguments against it here.

  1. At the time of writing, the going rate for a PS5 Digital Edition on eBay is about 150% of the standard retail price. ↩︎

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28 comments, sorted by Click to highlight new comments since: Today at 2:46 AM

If you buy from a retailer, you are paying in time as well as money. This is a good deal for people who have relatively more time than money. If you buy from a scalper, you are substituting money for the time component, which is good for people who value their time more highly.

Therefore scalpers are shifting supply from people who have more time to people who have more money. This is likely moving supply from middle class people to rich(er) people.

If you're in the set of people with more time than money, which is most people, I can see being upset. It arguably substantially increases time to PS5 because you weren't previously competing with someone like me who doesn't have time to spare to track inventory and call around, but has plenty of money. It's removing consumers from a pool that they weren't in yet.

The key difference is that time that is spent on a transaction is burned and not transferred. Money that is spent is transferred and the value of it preserved. An economy that runs on search-costs is just wasting a bunch of its capacity on stuff that nobody cares about. 

Or in other words: A monetary transaction consists of trade where both parties get what they want. A transaction that is mostly paid in search costs doesn't get the counterparty anything.

True, but the extra money goes to the scalper to pay for the scalpers time. The moment the makers started selling the PS5 too cheep, they were destroying value in search costs. Scalpers don't change that.

My guess is overall scalpers spend a lot less time buying them, though definitely not 0 either. So I do think scalpers drive total search costs down.


Therefore scalpers are shifting supply from people who have more time to people who have more money. This is likely moving supply from middle class people to rich(er) people.

The apparently irrational behaviour of selling at below market price is sometimes explicable by the seller wanting to reach a certain market: ticket scalping exists because tickets are sold below market price because bands don't want audiences of money rich, time poor businesspeople.

Just to check I understand this, this is roughly the same objection as my (b) above, right?

If so, I think this is plausible, though I'm not sure how bad it is. I think the overall badness would mainly depend on the total effect on the deadweight loss of wasted time.

(I also think that most people who can afford a PS5 should probably value their time much more than they do, but that's a different story.)

PS5 scalpers redistribute consoles away from those willing to burn time to those willing to spend money. Normally this would be a positive — time burned is just lost, whereas the money is just transferred from Sony to the scalpers who wrote the quickest bot. However, you can argue that gaming consoles in particular are more valuable to people with a lot of spare time to burn than to people with day jobs and money!

Disclosure: I'm pretty libertarian and have a full-time job but because there weren't any good exclusives in the early months I decided to ignore the scalpers. I followed and got my console at base price in April just in time for Returnal. Returnal is excellent and worth getting the PS5 for even if costs you a couple of hours or an extra $100.

Most of the answer here seems to be "no": PS5s are an underpriced good and "scalpers" are simply taking advantage of an inefficiency in the market to correct the mismatch between supply and demand. You could argue that Sony and retailers are fools for not simply charging more for them, but...

Maybe Sony is taking a page from Nintendo's playbook. Nintendo historically seems to intentionally underproduce consoles to meet demand. Although not confirmed as best I know, given it's happened repeatedly, they have access to good market research that should let them accurately predict demand, and because this has happened repeatedly they've had the opportunity to address supply chain issues that would cause it. Thus, it seems to be a strategy that they believe induces additional demand for their consoles.

For example, Nintendo releases a new console, in the US generally tied to the Christmas buying season. Supplies run short, people compete to get them, the news reports on how excited people are to get the latest Nintendo console but no one can find one. People hear about this and get excited, because a sure sign that something is valuable is that other people want it. Thus demand for the console is marginally increased over what it would be if they had produced an adequate supply to begin with or priced it higher to match demand.

I'm not aware of evidence that Sony has chosen to do this intentionally, but it's possible they're enjoying a situation where demand is so high that there's arbitrage to be done and they're actually reaping intangible benefits that are already priced in.

If you produce anything then you scale up production as time goes on. If you release your console as early as possible you will have supply shortage when it hits the shelves. 

Thanks for this. I agree that it's plausibly rational of Sony not to raise the RRP here.

Presumably the retailers would love to increase the price here, but they ain't the ones setting the RRP...

it's possible they're enjoying a situation where demand is so high that there's arbitrage to be done

Could you clarify what you mean by arbitrage here? What arbitrage is available to Sony in this situation?

Underproducing seems very silly, at least for Sony and Microsoft. A lot of the value is in the network—playing with friends. Nintendo may well be a different story, especially since their model is more single player focused and their profit (i think) is relatively more concentrated in hardware sales.

In the past, there was always talk of the consoles being sold at a loss. I’m sure that is very near the case still, especially now that they have people paying yearly subscriptions for online play. There is no reason to be hemorrhaging users when the $ is in the ecosystem

One cost of having prices raised by scalpers rather than retailers is that it's easier for scammers to impersonate scalpers than large retailers, so this raises the rate of scams. I don't really care what price PS5s sell for, but increasing the rate of theft-by-scam seems really bad.


It seems as if the following might be true. (I have no idea whether it is, but the key point is one you mentioned in the OP.) If it is, then the scalpers are hurting ordinary people's ability to acquire PS5s at non-scalper prices, even if they are prepared to spend a lot of time.

  • Every time some consoles become available, they will go to the people who get there first.
  • Ordinary people don't have very effective ways of getting there first.
  • Scalpers, because they are buying many PS5s per drop, can afford to take measures that let them almost always get there first. (Any specific scalper won't necessarily win in a particular case, but the person who wins will almost always be a scalper.)
  • Therefore, as long as there are scalpers around doing their thing, ordinary people don't have the option of trading time against money and getting PS5s in stock drops, because all the PS5s in those drops actually go to scalpers. Or, at least, almost all, so that the time-cost of trying to get a PS5 that way is much larger than you would expect.

Probably some ordinary people could implement the same sorts of bot that the scalpers use, but (1) most people don't have the necessary skills and (2) even for those who do, that again is a large investment of time given that all they want is one PS5.

I admit I'm pretty unsure how my beliefs change as the % of PS5s grabbed by scalpers changes.

Like, the more PS5s scalpers get, the higher the time cost for anyone trying to buy at RRP in the short term, but the faster the scalpers will run through the population of people willing to pay high markups?

This is where I realise that I don't know how scalpers actually react to that situation – maybe for some reason they just drip-feed their PS5 hauls? Maybe (probably) they're more patient than most of the people trying to win drops, so they sell off their PS5s more slowly (and so remove competitors from the pool at a lower rate than otherwise would be the case)?

I think there's a pretty strong chance I'm just misunderstanding something here.

The drip feed idea sounds really unlikely. The scalper is not a monopolist over the sales of PS5s, so he is accepting the market price, and can't raise it by unilaterally not offering supply. For that to happen the scalpers would need to coordinate.

 Some points that I have not seen mentioned before:  


that this is just the kind of thing that happens when retailers are foolishly prevented (by public opinion, if not by law) from charging the true market price.

Yes, this is the natural course of events, just like it is natural that people will steal from me if I leave the door to my house open at all times. This however does not mean that the thieves are not morally to blame. (I understand this was not your actual point, but it is a common point in libertarian discussions). Both the manufacturer and the retailers consider the scalpers' intention and tactics to be unwelcome. (Per the linked article, the scalpers have to write human impersonating bots to fool the retailers' websites; they are not using public facing APIs). In that sense, scalpers are not playing by the rules and it is reasonable for people to be angry at scalpers, even though it may not agree with an utilitarian outlook on ethics.

b) Others have argued that through scalping people's time vs people's money is traded. That is correct, but it seems to me that you are also trading luck for money. Obviously, getting a PS5 in a store drop is governed by chance as well as time. I am not entirely sure how that changes the net welfare calculus: 

  1. On the one hand, through scalping the good goes to the consumer who is willing to spend the most in one resource (money), which is strongly correlated to how much they desire the PS5 (which is good for net welfare). Luck is not correlated to how much a consumer wants the good. 
  2. On the other hand, if you award goods by lotteries, people do not have to waste resources that do not actually incentivize  the production of PS5s. 


c) In the particular case of a PS5, it is preferable that the good goes to people with more time, rather than with more money, because the former will have more time to actually use the PS5, thus deriving more benefit from it. If everybody were perfectly rational, the rich bidders should have already priced that into their price, but I doubt that people are that rational in this circumstance without being able to really prove it. 


PS5 scalpers are good for net welfare and selling PS5s below market rate is bad, but if you are unwilling to pay the premium then (1) you are worse off because your cost in time to find one goes up and finding one is like winning a lottery, or means you can bid with time instead of money which you clearly prefer, and (2) you were unwilling to pay the market price so you shouldn't have one yet.

Couldn't producers just hold an auction and have the proceeds beyond the price they're allowed by public opinion to charge go to charity?

You'll have to define "bad" in order to come to any conclusion on this.  It kind of sucks that the equilibrium is for the manufacturer to charge less than people are willing to pay, leading to waste in the form of reseller profit, time sunk in queueing/searching, or other non-productive costs.  I'd rather the manufacturer get that surplus, and use it to make more stuff for us (possibly far in the future), or at least to be rewarded for making something people want so much.

They can't do this, because too many people hate the idea of profit and don't understand that value is personal, marginal, and variable over time.  So they think there is "the price" that manufacturers can charge, and they direct their anger at scalpers.  If manufacturers charged more variable demand-based prices, that hatred would flow to them, and likely hurt them in the long term.  

It's that consumer misunderstanding and hatred which is the problem - the scalpers are just a mechanism to find the price where supply meets demand, and they're willing to take the anger for that.

I don't think saying "public opinion" is a good model for why the PS5 costs what it costs. I would expect that retailers are forbidden to charge more by contracts that they have signed with Sony. 

As far as Sony being limited by "public opinion" I have a heard time imagining a situation where Sony sets the prices to 1.5X of what they are currently resulting in a big customer backslash against Sony. 

One model of why Sony is acting the way it does is because Sony wants to give game developers the impression that Sony is committed to selling a lot of PS5 and if Sony would price the PS5 higher that commitment wouldn't be appearent. 

A stupid question: even if there are pressures that keep producers from selling at the true market price, why don't they produce enough to meet demand at the lower price they do sell at? A deliberate strategy to build hype by making consoles scarce? Something else?

There's currently a global shortage in computer chips, which limits the amount of PS5s that can be manufactured. Presumably Sony is churning them out as fast as it can (see e.g. sxae's comment elsewhere) but that is slower than everyone would like.

The recent extreme shortage was also caused in part by trade disruptions due to the Ever Given crisis, but I assume that'll work its way out of the system fairly soon.

Arguably the only value they provide to society is finding the actual equilibrium price of a PS5.  Is that important enough to be "good"?

Sure, they provide value to their customers.  But every PS5 that is bought for scalping makes it harder to find a PS5 at the store. They're effectively spending other people's time to save their customers' time. Qualitatively, that sounds like a transfer of value from one group to another -- not a benefit to society overall.  

In the end, the same number of people will own a console and get to use it.  Unless one person's leisure is worth more to society than another's, no value (to society) will be created by manipulating this distribution of resources.  The one who will really benefit are the scalpers themselves.  Sure, it might not be textbook rent-seeking, but it's pretty close.

(I do admit this argument might "prove too much", and could be turned around to any store selling any good...)

As I said in my reply to Dave Orr above, I now suspect that my opinion on the goodness or badness here is probably dominated by the net effect on the deadweight loss of time. (I'm not sure how much I think this should be weighted by the economic and/or social value of each person's time.)

So my main questions now are (1) what is the net effect, and (2) what would the net effect be, if people were more rational about how much they value their time? (I'm also not sure how much the answer to (2) would change my view.)

It sounds like you think the answer to (1) is positive?

Sure, it might not be textbook rent-seeking, but it's pretty close.

One important difference from classic pro-price-gouging arguments here, that I didn't really crystallise until now, is that the scalpers aren't really doing anything (AFAIK) to increase supply. So we lack the cutting-down-logs-with-chainsaws angle.

I think you’re right that it’s an overall loss. If they’re going to be sold at above msrp, it might as well go to the manufacturer to incentivize more supply. Otherwise, that delta goes to scalpers, and the scalpers have to spend their time. I think the reason Sony doesn’t raise prices is because it is sensitive to perception of users. The console itself is really just a portal to the Sony ecosystem, which is where the money is made anyways. They don’t want to be seen as charging you for the privilege of paying them for subscriptions and $80 games, especially since their model vis-a-vis PC gaming is lower upfront cost, higher ongoing costs. I think they’re playing the long game here, content to let the scalpers take the heat, while they wait out supply shocks that everyone sees as transient anyways.

The argument that every PS5 scalped means PS5 consumed and thus lessened competetion can also be run backwards. For every PS5 bought with mark-up on ebay there was a scalper competing for drops before the consumer had made an aquisition decision. With scaplers you are competing against the future and without them you would only be competeting with the present. This seems like a deal type opposite that of a "future". And the relevance of it is because the "the present" ie synchronous decision to consume and to buy is not available.

that this is just the kind of thing that happens when retailers are foolishly prevented (by public opinion, if not by law) from charging the true market price.

Retailer console base prices are set by the manufacturer. A first-party retailer is not allowed to charge more than the RRP as part of their agreement.

Perhaps an important economic point here is that consoles are generally sold below-cost. Console manufacturers lose money on every product they sell from hardware costs. This is because consoles make their money on games, where the margins are much fatter.

The issue here is that the manufacturers and retailers are working in a commodity mindset, whereas the market for these items has shifted away from a commodity and into a luxury due to the high demand compared to supply.

In general though, I'm optimistic about scalpers collapsing under increasing liqudity. Sony poured a lot of resources into automating their manufacturing pipeline and has been churning them out as fast as they can since day 1, with no sign of slowing. The number of consoles in the world is increasing at a much faster rate than the number of people who want consoles.

Sure, I agree that reselling will become less and less important as supply increases – presumably the prices of PS5s on eBay will fall as supply increases, until it's close enough to the RRP that reselling is no longer profitable.

In fact, my argument above depends, among other things, on demand increasing much more slowly than supply.

What I'm interested in here is whether, given the current (temporary) shortage, these kinds of reselling practices are actually (temporarily) harmful.

(Insofar as upgrading your gaming console later than you wanted is harmful.)