EBay & Star Wars

EBay & Star Wars Action Figures

Using the Force for Profit: Selling Star Wars Figures on EBay

The advent of computers and particularly the Internet has done a great deal to reduce information costs. If you were interested in buying a particular stock in the 1980s, you had to order a prospectus by mail, watch the previous day’s closing price in the printed newspaper, and go through a broker who may or may not have your best interests in mind when he quoted you the ‘market’ price of a stock at any particular time. Now, most stock information is relayed in more or less real time. You don’t need a broker and the most recent financial statements are a few clicks away.

The Efficient Market Hypothesis posits, in its three variants, that information is incorporated into prices, and that the price of an asset, commodity or security takes account of all information at any given time. We know, for instance, that the current price of an asset is based on some intrinsic value of that asset is worth. But aren’t some assets, specific assets, worth more to one buyer than another?

The auction format is the example of a market-based solution. In an auction, we learn that a price of an asset is dependent on the most elemental components of economics: supply & demand. The idea is simple enough: Put all the interested buyers in a room, or a virtual market like EBay, and determine who is willing to pay the most through a bidding process.

That was the experiment the Ambidextrous Economist ran to sell his Star Wars toys which previously had been collecting dust in an attic. In sixteen separate lots of toys ranging from one action figure to eleven action figures, auctions liquidated, for the most part, my holdings in Star Wars action figures, vehicles and playsets. It turned out that the selling component of the auctions was an invaluable learning experience.

Watching bids come in at the last minute and especially the jockeying for position turned out to be the most entertaining part of the experience. The ticking clock - the expiring countdown of the auction - turned out to be an exercise in brinksmanship. Once I set up shop and put the different lots online, the bids coming in began to more or less reflect the value of the action figures. Knowing very little about the process ahead of time, I happened to make several salesmanship-oriented decisions that proved to benefit the value of each item up for bid.

These are the few lessons that I learned from watching people sell and from my experience selling Star Wars toys on EBay: 

1. More bidders = Better results. It is a sign of faith in the auction process that sets an asset price to begin at the bottom floor, say $0.99, but more bidders are inclined to believe they’re going to get a ‘deal’ if they’re involved early in the bidding. Very few bids seemed to be taking place on goods with fixed prices, or floor prices reflecting the seller’s best estimate of ‘true’ value. As recommended by EBay, I set the starting price for all my Star Wars toys at $0.99. The prospects of getting a great price on any of the toy lots seemed to get more ‘action’ on a particular group of toys.

2. Bundling = Better sales. We learned from the telecommunications field that bundling can give sellers more value for their services than ‘a la carte’ offerings of the same thing. By putting entertainment offerings into ‘basic’, ‘premium’ & other assorted groupings, cable companies are able to charge for channels that some customers would opt out of if given the opportunity. In the same sense, someone who wanted a particular action figure might be willing to make a bid on the entire lot because, for lack of a better way to put it, they didn’t have a chance to break up the bundle into an odd lot. Everyone was bidding on the same thing, in the end, but the option to break out any particular action figure was not available. The lots that seemed to get the most page views, followers and bidders tended to be toys grouped together in much the same way the characters appeared in the Star Wars movies. This seems to have attracted several different categories of customers: 

• The collectors for ‘play’ - If someone wanted to collect every character, they might make a bid on an entire lot, even if they already had some of the other action figures in the lot.

• The displayers - Customers that were inclined to put up characters for display rather than play itself.

• The resellers - Customers that believed they could resell the lot for its component parts for a better price than the bundle sold. In effect, they believed that there was some tangible amount of bulk pricing factored into the grouping that could be exploited to different customers rather than all with the same customer.

3. The endgame is the real deal. As we learned in the game theory article, the endgame is where brinksmanship comes into play. On EBay, the Star Wars figure bids tended to come in the last minute of the auction. I can only imagine that this tendency had nothing to do with the nature of the goods for sale, but rather the auction format. Anyone trying to get the best price on any particular lot had the incentive to wait until the last possible second and determine whether or not the price was a fair representation of value. It became a matter of which buyer would ‘blink’ first that drove up the price. With so many disparate participants, it became impossible to collude to wait until the last minute. Often a low price would prompt someone to make a calculated bet that placing a bid far in advance might escape the divided attention of the other participants and ultimately garner a ‘bargain.’ As a result, the last minute and a half of bidding seemed to be a blur of calculation and competition that I would suggest had very little to do with fair value or information about market prices and more to do with testosterone & different access to disposable cashflows.

4. Copywriting matters. Salesmanship was evident in the descriptions offered for sale. In the case where sparse detail was offered about the items up for sale, there seemed to be less interest as it was gauged by those watching & bidding. When even a small quote from one of the Star Wars movies appended the description of the items up for sale, there turned out to be more bidders and a higher end selling price. This seems to have captured the imagination or at least a sense of nostalgia. Ultimately, it seems to have captured the impulsive nature of the bidding process. To see the items for sale in all their glory was one thing. To hear about the goods in a context from the movie that could play to their emotions brought out another side to the bidders.

5. Shipping costs were, in most cases, an afterthought. In all instances where I sold, the shipping costs were set flat at some variation of x +$0.99. The shipping costs were buried away from the bidding prices. When push came to shove, shipping may have initially turned off or attracted any particular bidder, but when it came down to crunch time and the clock was ticking down, the only mental calculus going on that included shipping was in the head of the most sophisticated buyers. Everyone else was making a bid on the negotiable part of the price (the ‘bid’). Only after the close of the auction, when the final price came in to the winner of the auction did the cost of shipping reenter the fray. 

    Are markets efficient? It depends on the market. A market needs to be more than one or two people bidding on an item, else the price isn’t likely to up much further than the initial floor price. Markets incorporate information, but they also incorporate noise: That which is far separate from the signal. Markets incorporate emotion, and that drives prices up and down. How else can you describe the movement of securities and commodities on a day with a wild swing in the markets? There is emotion at play in the pits of Wall Street, but it also factors into the pits of our stomachs. Willingness to pay is a notion that acknowledges that price is determined uniquely by each potential buyers situation.

The efficient market hypothesis exists in three forms:

1. Weak form Market Efficiency - Past information is incorporated into prices

2. Semi-Strong Market Efficiency - Past information is incorporated into prices and new information is incorporated as soon as it becomes publicly available.

3. Strong form Market Efficiency - All information, including ‘inside’ information, is readily incorporated in the current market price.

You might be tempted to say that all the earlier bidding on a price represents a lack of information available on the value of any particular lot sold. I would argue that a market didn’t exist in its truest form until the last minute of the bidding, in most cases at least. In other cases, a buyer showed exceptional zealousness to ‘win’ a bet and made foolish impulsive guesses at the value of a bundle of goods. This needs to fit somehow into the efficient market hypothesis. 

The availability heuristic allots, among other things, that while information may be available, that doesn’t mean that people are able to process it immediately or without making errors in judgment. Anomalies exist, and that precludes the notion of efficiency as we know it best. In even the purest market circumstance, all buyers are not perfectly informed agents. How do we know this to be true? For every buyer there must be a seller for a market to exist. Otherwise trading volume would be zero. Some delay or misunderstanding of information in the pricing of assets is inherent in the process, something that a complete discussion of market efficiency must have in order to account for what we actually observe taking place in the markets.