You Don't Want to Believe It But It Is a Zero Sum Game [Archive]

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06-13-2007, 01:05 PM

Posted By: peter chaoIt was a long, long, time ago...in a land far away. A sleepy undergraduate was learning the subtlties of Game Theory. Believe it or not, I learned something. A sales transaction is a zero sum game. By this I mean, the retailer wins and the consumer loses. The reason why it's considered fair is that the retailer provides a service and is fairly compensated for it. If the above is true then how do the auction houses do it. Is it done with mirrors. Here's what they managed to do. They have persuaded everybody that is a party to this game that they have won. When an item is auctioned off, the seller, the buyer, auctioneer, and other bidders all feel that they have won. It's a pretty incredible feat considering the House normally takes approximately 40% of the deal. If they don't do it with mirrors, how do they do it. Let me know your thoughts on this. I know you guys can't all be excited by your work. Here's a chance to actually exercise your brains and get rid of the cobwebs. And here's another question that will keep you up at nights. Which auction house pulls off the trick the best. Peter

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06-13-2007, 01:24 PM

Posted By: Dan BrettaUmmmmmmm.......what?

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06-13-2007, 01:24 PM

Posted By: Max WederPeter All I can say is that your understanding of game theory is completely different than mine. Max

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06-13-2007, 01:26 PM

Posted By: Dave FLOL. I'm sure I didn't get the right take on this Peter. But it made me laugh. Dave

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06-13-2007, 01:27 PM

Posted By: Marc S.Auction mentality rules. Auction houses often (but not always) command much higher prices for similar material than can be achieved elsewhere. You try selling a 1965 Topps Leaders card in PSA 10 on Ebay or somewhere else directly for $24,000- I dare you.

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06-13-2007, 01:31 PM

Posted By: peter chaoYour right, what can I say I'm sitting here bored on a Tuesday afternoon. <img src="/images/happy.gif" height=14 width=14> The question I've posed is not really a game theory problem. What I've done is taken Game Theory and applied it to a real world problem. Who knows if I'm way off base guys, let me know. Peter

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06-13-2007, 01:35 PM

Posted By: Dave FPeter...your way off base. Unfortunately for me trying to figure out what exactly this thread is about would keep me up at night. But hey, maybe it's lawyers speak.

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06-13-2007, 01:36 PM

Posted By: leonI got the question though it could have been shortened to: "why do folks use auction houses to sell items?" In which case Mark S gave a succinct and correct answer.....I thought it was a good question....it just took a little while getting there....

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06-13-2007, 01:41 PM

Posted By: barrysloatePeter- if you can get my consignors to give me 40% of the take, I'll cut you in as a partner.

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06-13-2007, 01:41 PM

Posted By: MVSNYCi am reading a great book that my friend from Hollywood just sent me..."The Game: Penetrating the Secret Society of Pickup Artists" by Neil Strauss. i highly recommend it. MS

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06-13-2007, 01:42 PM

Posted By: Dave FSince you got the question, what does "the seller always loses" exactly mean? I may need to quit selling.

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06-13-2007, 01:43 PM

Posted By: Jeff LichtmanPeter, did you bill anyone $400 an hour for that bit of scholarship?

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06-13-2007, 01:45 PM

Posted By: leonI wasn't referring to that part of the question <img src="/images/happy.gif" height=14 width=14>.....though I guess since the buyer is paying 15%-20% more due to buyers fees then maybe that is losing money for the seller since the auction house is getting it?

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06-13-2007, 01:49 PM

Posted By: peter chaoUnfortunately I wasn't able to bill anybody for my contribution to game theory. You guys have generally covered all the bases, except for one. It's an important factor and goes to the core of the difference between retail sales and auction sales. Peter

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06-13-2007, 01:51 PM

Posted By: Dave FPeter Sounds like the seller only "breaks even" if he uses the B/S/T as opposed to auction houses or ebay. Is that where you're going with it?

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06-13-2007, 01:54 PM

Posted By: Marc S.which one wasn't answered? Which auction house pulls it off best? You can't answer a question like that, truly, given the number of houses that have hidden reserves and/or fake sales (this new PSA certification numbers...) That said, I think the obvious culprits are Mastro's, Sotheby's, REA and Hunt in terms of whom is able to get particularly crazy prices at times in what appear to be legitimate sales.

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06-13-2007, 01:56 PM

Posted By: peter chaoHere it is guys, you've missed an important factor. In general for retail sales there is no future value. By this I mean that when you buy a Ford truck, you expect the truck to depreciate from the moment you buy it. However, for auction sales the expectation is the item you purchased will appreciate in the future. Guess what happens to the anticipated appreciation. It is divided in advance by the participants. That's why it seems like everybody wins. You've taken the future value of the item and divided it in the present. Warren Buffett move over. <img src="/images/happy.gif" height=14 width=14> Peter

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06-13-2007, 01:57 PM

Posted By: Marc S.<<Peter Sounds like the seller only "breaks even" if he uses the B/S/T as opposed to auction houses or ebay. Is that where you're going with it? >> B/S/T only works when you know the "correct" value for a card, which often times no one does for something that is exceptionally rare (either by itself, or a condition rarity). Who would have been able to correctly price the Doolan Pirate Back last earlier this Spring, for example? Plus, direct sales by their very nature prevent the dick-swagging that you see at the major auctions. No one would have prices those cufflinks at Sotheby's at $60,000....but independent of the auction house's take on the commission, the consignor must have been ecstatic vis a vis the estimate/inherent value of those particular cufflinks.

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06-13-2007, 02:01 PM

Posted By: Marc S.you can't really compare a relatively-finite-lifed asset (like a vehicle) with a baseball card or other "investments". Future anticipated appreciation in a truly efficient market will always be captured in the present value of the asset, given the knowledge of the asset, its potential volatility, etc. A baseball card is just a thing, much like a share of Google or even real estate. Not everyone anticipates appreciation, or even desire it. Many prefer potential volatility which will be discounted more by relatively risk-averse investors given those risk-lovers the potential to either win a lot or lose a lot, but will, on average, come out ahead. I don't think it ever is a case of everybody wins, especially in situations whereby an auction house is taking a significant cut along the way.

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06-13-2007, 02:06 PM

Posted By: Rob DewolfI'm just impressed you used the correct version of the word bored, as opposed to board. Seeing as how that your/you're thing is so baffling. "Your right, what can I say I'm sitting here bored on a Tuesday afternoon."

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06-13-2007, 02:07 PM

Posted By: Dave FPeter At this junction I would suggest Warren Buffett stay seated. I am beyond clueless. You can't base a seller being a loser because he sells a card now for $400 that will perhaps sell 10 years from now for $850.

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06-13-2007, 02:16 PM

Posted By: dstudeba"Future anticipated appreciation in a truly efficient market will always be captured in the present value of the asset, given the knowledge of the asset, its potential volatility, etc." This was like a ray of light in the confusing clouds of this discussion; and as a bonus is completely correct.

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06-13-2007, 02:18 PM

Posted By: Jason Land now I have to go to the doctor for various maladies which have flared up. Peter, please re-phrase all of your questions, and then directly state which part you are tying in to formal Game Theory. If you are simply wondering why buyers and sellers both pay ridiculous amounts to a 3rd party to transact a sale for them, well, as far as I can figure: -prestige -ego (very similar to prestige) -hope for higher realized value -fun of making it an event -competitive thrills of bidding process -desire to escape financial and legal responsibilities of transaction Now, after listing it out like that, (and making a large assumption that you agree with those items), a more funner project would be to see what percentage share of the premiums are assigned to each one!!! <img src="/images/happy.gif" height=14 width=14> Just for the record, every part of every one of my days is extremely exciting and rewarding at work (even in this bleeding market), so if any high net worth folk here want me to manage their money for them, shoot me an email! <img src="/images/happy.gif" height=14 width=14> <img src="/images/happy.gif" height=14 width=14>

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06-13-2007, 02:24 PM

Posted By: barrysloateLet me simplify this whole thread: If you buy a quality baseball card today, there is a good chance it will be worth more tomorrow.

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06-13-2007, 02:27 PM

Posted By: Dan BrettaC'mon guys...he said he was sleepy when he learned Game Theory. <img src="/images/wink.gif" height=14 width=14>

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06-13-2007, 02:43 PM

Posted By: peter chaoI would elaborate on what Barry is saying. Let me put it this way, if the value of the item you were bidding on depreciated from the moment you bought it, would you continue to raise your bid at auction. If you were rational, the answer would be "no." Peter

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06-13-2007, 02:58 PM

Posted By: Marc S.Efficent market theory: Your quote: "Let me put it this way, if the value of the item you were bidding on depreciated from the moment you bought it, would you continue to raise your bid at auction. If you were rational, the answer would be "no."" If someone anticipated that the value of what they were bidding on would drop, they would not buy it (assuming that they are buying an asset, like a baseball card, as opposed to a drug/medication which is needed today but might go down in price tomorrow). If someone expected that a card worth $100- today would drop to $90 tomorrow, efficient market theory would suggest that the price today would drop to $90 or less. NO ONE in a rational market pays more for an item today if there is relative certainty that it will be less tomorrow.

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06-13-2007, 02:58 PM

Posted By: Marc S.this is the first time in a while that I've laughed out loud reading a thread...

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06-13-2007, 03:02 PM

Posted By: Peter SpaethYou should read Mr. Chao's pronouncements more often. <img src="/images/happy.gif" height=14 width=14>

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06-13-2007, 03:17 PM

Posted By: Jeff LichtmanPeter, what area of law is your specialty? And where did you go to law school?

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06-13-2007, 03:20 PM

Posted By: peter chaoGuys, I'm glad that you find my posts entertaining. Actually, I try to be profound, but entertaining is good enough. <img src="/images/happy.gif" height=14 width=14> Peter

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06-13-2007, 03:21 PM

Posted By: peter chaoYou first. Let me know your specialty and law school and I will respond in kind. Peter

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06-13-2007, 03:22 PM

Posted By: Jeff LichtmanCriminal defense. Duke.

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06-13-2007, 03:25 PM

Posted By: BrianI like applesauce

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06-13-2007, 03:25 PM

Posted By: peter chaoBaseball Card Law (Real Estate litigation), Boalt Hall (U.C. Berkeley's law school). Peter

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06-13-2007, 03:26 PM

Posted By: J LevineMy understanding of game theory as applied here is rather limited. The idea that people bidding in large auction house's auctions tend to bid more and more often is less game theory than socio-economic theory. Large auction houses tend to garner higher bids (re:PSA 10 Leaders card) for several reasons. #1 reason is a large auction house is insured and has a reputation and many high end (read as people with large sums of money to spend) would rather go through a large auction house as opposed to ebay or a "street" sale for that reason. They know and trust the auction house who actually has the card in hand. Trust is huge when making any large purchase. Sothebys, Mastro, REA, etc. all cater to this and make sure that they try to have a spotless record. Socio-economic theory suggests that people will take less risk the larger the sum of money they spend. Haven't we all bid that $1 on a risk auction with low feedback...how many of us are willing to bid $22,000 on a low feedback unknown seller? In response to the appreciation value...Peter states that it is a zero sum equation. This really is not true. Taken as one equation = one transaction, this is true. What is not true is that this is not an isolated transaction like buying a truck. Baseball cards are not static and do not generally go down in value. What helps the auction houses is the long term. Cards, paintings, art, etc. tend to go up in value. Cards, art, etc. all tend to be sold again and again (granted the timescale may be huge as well). Now what makes the big auction houses tend to really make money is auctioning the same material over again. Granted it does not happen often but if the auction house makes one transaction (for arguments sake- a Baltimore Ruth) and later the card sells through the same auction house, they make more money off the same assest. Rarely do they sell for less. This is how the equations do not end up as zero sum. I also won't go into the discrepancy between seller and buyers fees and how that figures into an auction house making money. It has been literally 20 years since I did this kind of thinking in college and teaching first grade really does not require higher level math and theory so if it does not make a lot of sense that is your reasons. If it does make sense, I will be shocked. My two cents, Joshua

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06-13-2007, 04:04 PM

Posted By: Bill ToddEcon is one of the few classes I did not sleep through. Here's how it (supposedly) works. Everything has utility--money, labor, goods, even ideas and values. That utility can change from time to time depending on circumstances. Examples: You'd willingly pay more for a "common" W502 if it were the last one you needed for your set. You're willing to work 8 hours a day for a certain wage, but to get you to work more than that the employer has to offer you a higher hourly rate. In a "perfect" transaction what each party gives up is exactly equal in utility to what they receive. Both parties are aware of this. Anything that pushes the transaction in one direction or the other is zero-sum--that is, one party gains what the other one loses, and both are aware of the difference. Example: You know you're getting hosed (gag fully intended) every time you buy gas these days. Peter's point is (at least I think so) that the auction houses set up an environment where people willingly get pushed off that equilibrium point, and still think they came out ahead. In fact, every party thinks they came out ahead--something that's simply not possible in a strictly economic sense. How does this happen? Are the auction houses in fact adding some utility? Bragging rights? Security? Pedigree? Simple brokering? If that's the case, then who does the best job of it? Bill

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06-13-2007, 04:16 PM

Posted By: DYLANJust want to point out since everyone is using automobiles as a comparison, not all depreciate. I was watching one of those car auctions on ESPN2 and just about every car(all rarities of course) that sold for 2,000 60 years ago was selling for half a mill now! And the above example quoted isnt a true zero sum game. Take poker for instance one wins exactly the amount one loses (ignoring the possibility of a house rake) Poker exlemplifies zero sum games not mastronet lol

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06-13-2007, 04:31 PM

Posted By: barrysloateBill- in your example the auction house gets a fixed commission, so they can clearly measure their gain. It is called their net profit. The result for the buyer is more abstract. One buyer might pay $1000 for item A and feel he overpaid, while another may pay $1500 for the same thing and brag to his friends that he got a great deal. I guess that is the utility curve.

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06-13-2007, 04:38 PM

Posted By: peter chaoLet's say that a Cobb with Cobb back is bought at auction for $50,000. Look what each party gets out of the deal. The Auctioneer gets their percentage. The Seller gets the net sales price. Basically, that's the same as saying the future value to the Seller is 0. In other words the Seller is willing to surrender any claim of the future value in exchange for the net sales price. The buyer purchases for a price equal to the market value. To him it is the value of the card in his collection plus an expected future appreciation (i.e. present value). Peter

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06-13-2007, 04:39 PM

Posted By: MarkJeff: Since you brought up law schools, which one does US News and World Report rank higher as between yours and Peter's?

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06-13-2007, 04:43 PM

Posted By: Max WederDoes this have any Fin 48 implications? That's all I want to know. Otherwise, it is making my brain hurt. Max

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06-13-2007, 04:46 PM

Posted By: peter chaoPay attention, there's a test at the end. Actually a lot of the theory is not very useful. I'm sure that Barry does fine just going by instinct. Peter

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06-13-2007, 04:47 PM

Posted By: barrysloateHere's another way to look at it: in my current auction I have lots that are very interesting to me, and lots that aren't. But that is irrelevant. It is important to me that each of them does well, and a commission on a boring lot is the same as a commission on an interesting one. A buyer has a completely different read on it. An interesting lot is potentially worth a great deal to him, while a boring one is relatively worthless. I'm not sure what this proves, but it must prove something. <img src="/images/happy.gif" height=14 width=14>

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06-13-2007, 04:52 PM

Posted By: John H."Guys, I'm glad that you find my posts entertaining. Actually, I try to be profound, but entertaining is good enough." Peter, I'm not sure entertaining is the right adjective for what we find many of your posts to be. Obscure might be more accurate. John

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06-13-2007, 05:07 PM

Posted By: Jeff LichtmanMark, can't say that I've checked such a ranking since I've been a lawyer; I'd be embarrassed honestly to actually take the time at this stage of my career to make such an effort. I mean, how lame would that be? I'm more concerned with my ranking as a criminal lawyer in the country anyway. Why don't you check that out and get back to us?

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06-13-2007, 05:32 PM

Posted By: KyleMileHigh is only charging me 2.5% for their upcoming auction. That's much cheaper than eBay, and Paypal.

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06-13-2007, 05:34 PM

Posted By: Jeff Lichtman2.5% for the consignor's fee? Did you have a large consignment?

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06-13-2007, 05:42 PM

Posted By: peter chaoI'm sure that Jeff will agree with me. In the legal profession you have a bunch of Alpha males that are at each others throats. The last thing you think about is the law school somebody went to, that is yesterday's news. It is about survival and developing a reputation. I'm sure that Jeff would pretty much agree. It certainly isn't for everybody. In many cases it's not even the profession for people that graduated from law school. Only 25% of my law school class is still practicing law. Almost all of them passed the bar. Very few of them changed their profession because they couldn't make it financially. The majority changed their profession because they found a profession or business that they enjoyed more. And why not, if you can work in a more enjoyable business and make money at the same time, go for it. <img src="/images/happy.gif" height=14 width=14> Peter

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06-13-2007, 05:48 PM

Posted By: Jeff LichtmanI don't know that I have more than a few friends from law school that still practice. I have one memory from the early 90s of a friend of mine from college -- he worked for a different firm in my building but we shared law libraries -- who was standing at the copy machine making a mound of copies while wearing his double breasted suit buttoned to the hilt, cufflinks flashing. He gave the appearance to me of being a very important copier. I remember thinking, "Good Lord, don't ever let it get like that for me." I have never worn a double breasted suit or cufflinks in my life because of that memory.

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06-13-2007, 05:51 PM

Posted By: Cobby33Unfotunately, there are still plenty of lawyers who care about rankings of their law schools and law schools in general. Like these guys say, it's irrelevant now. It's really irrelevant at any point, but there are a few really insecure tools who find that kind of information important.

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06-13-2007, 06:15 PM

Posted By: MarkJeff, that's great spin saying law schools are irrelevant after you try to call someone out for attending a poor school. And then it turns out he attended a Top 8 school. Hilarious. If you weren't such an arrogant spin artist, you'd admit that backfired on you and apologize.

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06-13-2007, 06:21 PM

Posted By: Jeff LichtmanMark, I was actually concerned that Peter went to a school in another solar system, not ours. But thanks for taking such an interest in me. It's always gratifying to know that some jealous stranger spent part of his day doing some research on me.

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06-13-2007, 06:25 PM

Posted By: peter chaoGuys, I really enjoy being part of this board. I get nothing but pressure and grief from my clients. Once in a while I get testy responses from people, but it is nothing compared to the pressures of practice. Posting is like a walk in the park during a summer day, it's fun. <img src="/images/happy.gif" height=14 width=14> Peter

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06-13-2007, 06:25 PM

Posted By: leonBarry- one minor point. I ain't too smart but I knows a tiny bit about business. An auction houses fees they take in are their gross profit. Take out all of their expenses and you are left with net profit..(I won't go into EBITDA)...regards

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06-13-2007, 06:30 PM

Posted By: MarkI haven't done any "resarch" on you, Jeff. Rather, I can tell you're arrogant from how you treat others on this forum and that will try to desperately spin an issue even when it's blatantly obviously you're in the wrong.

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06-13-2007, 06:32 PM

Posted By: Marc S.<<Let's say that a Cobb with Cobb back is bought at auction for $50,000. Look what each party gets out of the deal. The Auctioneer gets their percentage. The Seller gets the net sales price. Basically, that's the same as saying the future value to the Seller is 0. In other words the Seller is willing to surrender any claim of the future value in exchange for the net sales price. >> How is this different than anything else? Isn't this essentially the definition of a sale, whether it is Leon consigning his Four Base Hits to Mastro or if it is my father selling a pound of beef at the supermarket? Isn't a sale, by definition, an exchange of cash or credit today to transfer ownership to someone else? Are you overthinking transactions a wee bit, Peter?

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06-13-2007, 06:32 PM

Posted By: Max WederLeon For shame. The fees they take in are revenue. Gross profit is determined by subtracting direct selling expenses. Net profit is determined after deduction of running expenses that aren't directly attributable to the sales. Max Tax lawyer by day, frustrated accountant by night, wishing his GAAP was more complete.

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06-13-2007, 06:36 PM

Posted By: leonCost of goods minus selling price = gross profit. No? Their cost of goods is 0....

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06-13-2007, 06:38 PM

Posted By: Jeff LichtmanMark, I actually think I'm pretty fair. I don't protect friends unless they deserve it and I try to look at an issue fairly whether or not I have a financial interest. One tip, though: if you're going to criticize someone for a phantom typo that was corrected many minutes before you posted, at least make certain that your own post is even slightly grammatically correct. Otherwise, you may come off as a moron.

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06-13-2007, 06:43 PM

Posted By: Max WederLeon Cost of goods isn't really relevant I guess when it's a commission based revenue. Your shame is thus diminished (mine is increased), and I will retreat to my income tax act, where law always trumps accounting. However, in my defence, in the case of an auction house, the gross profit and the net profit would always be the same. And I suspect some of the auction houses actually do have inventory, or at least the bidding history suggests that <img src="/images/happy.gif" height=14 width=14> M

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06-13-2007, 06:49 PM

Posted By: Corey R. ShanusAuction houses don't take 40%. 25%-30% I would say is more typical, which roughly represents the spread between wholesale and retail. And for really special items, I would think the spread potentially could be much greater (both due to (i) auction houses being willing to lower their seller's premium to attract great consignments, and (ii) bidding wars being more likely for the really great items), thus creating tremendous economic incentive to auction those items. In regard to who "wins" in an auction format, I don't agree a win-win-win scenario violates any economic theory. Indeed, to go one step further, if it did, then I would think eventually market forces would kill it because unless on average all participants show economic gain, why would they stay in the game?

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06-13-2007, 06:55 PM

Posted By: barrysloateLeon- I thought you were right but Max says otherwise. Net profit is after all expenses, gross profit is calculated before expenses are deducted. So what are we missing? Corey- because of the competition I think auction percentages are getting smaller, more like 20-25%. I don't think 30% would be very competitive these days.

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06-13-2007, 07:34 PM

Posted By: Bob CIn a two-person zero-sum game, the payoff to one player is the negative of that going to the other. Although zero-sum games are not terribly interesting to economists who typically study situations where there are gains to trade, most common parlor games such as poker and chess are zero sum: one player wins, one loses. In an auction where the auctioneer takes a percentage of both buyer and seller proceeds I submit the zero sum theory is negated. That being said, the anticipation of the buyer for future "appreciation" somewhat offsets this. Any statistician's out there? Care to get into the Randon Walk Theory?

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06-13-2007, 07:42 PM

Posted By: Jeff O...I love it when you spell "defense" with a "c" instead of an "s". It's so endearing. Now do your best Don Cherry impression and use the word "about" while you're doing it. <img src="/images/happy.gif" height=14 width=14> Jeff

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06-13-2007, 07:43 PM

Posted By: KyleI was offered 2.5% for one card, but then increased the total number of items to 9 total items. -Kyle

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06-13-2007, 08:32 PM

Posted By: MarkJeff: Yeah, we're all morons compared to you, you are so smart. I must have done research for part of my day to learn you are a lawyer. It can't be because you mentioned the fact in this thread and in 80%+ of your threads. What an arrogant a$$ you are. Mark

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06-13-2007, 08:37 PM

Posted By: Randy TrierweilerThe only things in this thread I really understand is Dan Bretta's first post, and the last post by Mark. Everything else is fuzzy.

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06-13-2007, 09:23 PM

Posted By: joeHuh? Ty Cobb, Spikes flying!

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06-13-2007, 09:26 PM

Posted By: Jeff LichtmanMark, don't get me involved in your self-esteem issues. Being a lawyer is not exactly a badge of honor these days -- at least to most normal, well-adjusted people. Keep up that pent-up anger, though, it is amusing to watch.

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06-13-2007, 09:33 PM

Posted By: Ryan ChristoffIs it just coincidence that at almost exactly the same time Julie stopped posting, Peter started??? -Ryan

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06-13-2007, 09:45 PM

Posted By: Bottom of the NinthInteresting theory, Ryan. However I am pretty sure different decoder rings are required to follow their posts. I am proud to say I do not possess either. Greg

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06-13-2007, 09:50 PM

Posted By: leonLet's take some of this stuff to personal emails and get back to the subject at hand or er... cards in general....please.....

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06-13-2007, 09:56 PM

Posted By: MarkKeep up the arrogance Jeff, it's amusing to watch. Good luck with your future pedigree fights. Remember, if you lose, just insult your opponent more and it will feel like you won.

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06-13-2007, 09:57 PM

Posted By: CatDamn, 72 posts, I guess I'll have to start from the beginning.

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06-13-2007, 10:01 PM

Posted By: Jeff LichtmanMark, I didn't insult you. You insulted me. That is usually what happens on the board if I recall -- you come out from under a rock on a thread and insult me, then I bitch slap you down and you disappear again for a while. Weren't you the tool that criticized Wonka for doing a photoshop of Rowan Atkinson's head on a baby and labeling it Jim Crandell? I have a good memory -- you said something like, "Oh, now we can't even post on this board without Wonka doing a photoshop picture of us." Back under the rock, now, ok?

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06-13-2007, 10:59 PM

Posted By: leonPlease take this off line. .... breast regards

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06-14-2007, 10:43 AM

Posted By: peter chaoThat's a good question. How is what the auction houses do different than retailers. Have you noticed that auction houses take a much larger percentage than most retailers. I really think they do it with smoke and mirrors. It starts with the catalog, almost every item is said to be rare or rarely seen and then it progresses from there. They sell the sizzle (future value) of an item. And to be cynical about it, they get you ready to mortgage the house to obtain that must have item. Then they initiate a competitive process where only one person can win the rare item. It's smoke and mirrors, I tell you. <img src="/images/happy.gif" height=14 width=14> My opinion is that REA does it best. They also limit their auctions to once a year to give you an even deeper feeling of exclusivity. Peter

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06-14-2007, 11:12 AM

Posted By: barrysloatePeter- why do you keep saying the auction houses take such a big cut? The auction business is very competitive, and each house has to stay even with the others. In the retail business you can ask whatever you want. It's your item an you can mark it up 1000% if you choose.

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06-14-2007, 11:14 AM

Posted By: Dave FMy guess..and only a guess...is no matter what the auctions houses as a whole have taking quite a hit with the rising of ebay in the last several years. I'm sure Barry could chime in on that better than myself though. I don't think the houses would be getting percentage wise what they would in the days before ebay.

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06-14-2007, 11:17 AM

Posted By: barrysloateYes Dave- the percentage I ask has to be competitive with what others are getting, if not even a little better. And the major change with ebay is it allows everybody to sell their own cards. The business doesn't get any easier; hence, a smaller share for the auction house.

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06-14-2007, 11:22 AM

Posted By: Al C.risafulli"Have you noticed that auction houses take a much larger percentage than most retailers. " Says who? In what business? A retailer often bases its profit margin on dollar value. Maybe they make 2-3 points on a television, but 40-50 points on a remote control. They constantly squeeze their manufacturers and distributors for lower prices and better packaging. Manufacturers are required to submit planograms to tell the stores how to merchandise properly. They also have to produce signage and displays for the retailers. In many cases, they have to provide product training. They often have to pay money to advertise in the retailer's circulars. And on top of that, they need to provide market development funds to help the retailer defray the cost of marketing. They have to have co-op programs and volume rebates so that the retailer gets additional discounts and funding when the retailer sells a higher volume. All this costs money, and it's paid for by the manufacturer - which helps the retailer's bottom line beyond the margins they sell on the individual product. The manufacturers take hits on their margins constantly. And then the retailer fixes a price, and any consumer who wishes to purchase the item needs to buy it at that price. Furthermore, the retailer is dealing with products where there are multiple alternatives to buy. Want to buy a battery for your cellphone? Take your pick from 10 different aftermarket brands and 100 different styles and colors. Don't like the price at Circuit City? Walk down the street and buy it at Wal-Mart, Staples, Office Depot, Target, Best Buy, Radio Shack, Fred's Camera Shop, or any other store that sells the same item. In the auction business, the auctioneer produces a catalog and (often) a website, and is solely responsible for presenting the item in the way that's designed to generate the most bids. They're responsible for going out and finding the potential buyers who are likely to pay the most for the item. They're even responsible for finding the material to auction. And since their reward is a percentage of the closing price, they are rewarded solely based on how good a job they do. The auctioneer takes a commission from the buyer and the seller, but doesn't ask the seller to chip in to cover marketing costs, or do training, or make signs and posters - once the item is in the auctioneer's possession, it becomes their responsibility entirely. And if they do a bad job, they're likely to lose the opportunity for all future business with the consignor. Furthermore, with many items in an auction, the buyer doesn't have the choice to walk down the street and buy the same item - or a cheap knockoff - from another store. It's not like you can bring in a coupon for 10% off a Wagner, and then if you don't like the service, bring it down the street to a competitor who honors all coupons. The auctioneer usually doesn't have shelves and distribution centers stocked with identical items and multiple manufacturers from which to source them, either. And the seller of the card has a completely different scenario as well - they're not trying to sell their Goudey set in every possible distribution channel - they have just one, and they're choosing the channel that they think will get them the best price. The only similarity between the two transactions is that the buyer ultimately has to pay for the item they're buying. Comparing a retail transaction of a commodity to an auction transaction of a collectible isn't even akin to comparing apples to oranges, because there are too many similarities between apples and oranges. It's more like comparing apples to hammers. -Al EDITED to rant a little further.

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06-14-2007, 11:32 AM

Posted By: peter chaoAll you have said is true. But the retailers do not focus on rarity and future value. They are not asking you to speculate. They are saying that an item such as a battery has a certain degree of usefulness and they want to be compensated for providing that battery to you. What they offer is a lot more concrete than an auction house. Peter

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06-14-2007, 11:35 AM

Posted By: Max WederDitto on Al's comments. Margins for retailers are squeezed by competitive economic forces, just as commissions charged by auction houses are. Anti-trust laws prevent collusion by sellers and auction houses. Peter, I'm not sure where you get your basis for your statement, but seller's commissions charged seem to have dropped markedly in recent years for auction houses, as the supply of vintage items becomes more difficult to obtain. I have even heard of a negative commission for a premium item. In order to maintain profit margins, the auction houses have increased the buyer's premium. As a bidder in an auction, you will only factor in the latter in deciding what you bid. If you don't like the price, don't bid on it. How is that smoke and mirrors? Max

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06-14-2007, 11:35 AM

Posted By: barrysloateAl- you used the example of a retailer who sells a product such as a television. I am referring to a retailer of baseball cards, who has nothing more to do than rent a table at a show, act obnoxious, and charge too much. <img src="/images/happy.gif" height=14 width=14>

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06-14-2007, 11:38 AM

Posted By: leonNot to speak for Peter C (I don't think I could if I wanted to) but I think he is talking about the puffery in the descriptions. I agree with him on that point but don't blame the auction houses either. Everything can't be rare or it wouldn't be...uh ..er...rare....

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06-14-2007, 11:43 AM

Posted By: barrysloatePeter- a battery is not something that you really can auction. It has a fixed price give or take a few cents. Could you see a bidding war with snipes set for a package of six AAA's? It wouldn't happen. Auctions are effective for items that are rare and in demand. Then people will compete for them.

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06-14-2007, 11:51 AM

Posted By: Marc S.One thing strikes me in some threads like this: People here like to complain about the prices of what they collect. Auctions have high buyer's fees and through the "smoke and mirrors" and focus on rarity, prices go much higher than they otherwise would, so there are no deals to be had in auctions. Shows are equally non-productive as dealers seem to have either shiny, new crap, or they have vintage cards at such a premium price that it is more a museum than a dealer, since no one would buy at the prices listed. Ebay is equally problematic because everyone snipes and prices go way too high if more than one person has a high snipe for a card they want. So I question where people get all their cards -- or if all of us, as collectors, simply like to bitch and moan about the prices we pay for what we collect, since obviously none of us are getting any deals anymore.