The Playstation 5 and the Xbox Series X are sold out on all major retailers due to scalpers buying a large chunk of the stock. A battle between the customer and resellers is emerging with the government and retailers caught in the middle.
The economics of supply and demand are the cornerstones for the process of scalping. Scalpers focus on obtaining as much of the supply as possible in order to control the market for a specific product.
Over the Black Friday shopping extravaganza, gamers were left unable to purchase the newly released Playstation 5 and the Xbox Series X. Scalpers are the root cause of the issues with purchasing the console because they are trying to obtain as many consoles as possible. This left the people who will actually play the video game consoles unable to get their hands on a unit.
While gamers are currently feeling the effects of scalping, the concept of scalping traces back to concept tickets. These scalpers waited in line to buy tickets in bulk and sold them in the parking lot of the event for profit.
Then the internet came and shook the secondary markets as a whole. Sites like StubHub allowed people to sell their tickets online from the comfort of their homes. David E. Harrington published a study on HeinOnline addressing the evolution of the ticket reselling market after the internet.
“Secondary ticket markets have become increasingly competitive over time because of innovations like online resale market-places and ticket aggregators made possible by the internet,” the study states. “The increase in competition has squeezed out most of the profits that used to be gouged from the ill-informed consumers buying from sellers with market power.”
The market evolved from an informal, word-of-mouth process into one that bestows more power to the customer when it comes to pricing. Customers were more informed about the going rate for tickets so they would not be ripped off as easily.
A John Muir College sophomore recognizes the importance of doing research when looking for a product. She cross-checks various websites and makes sure she is not going to pay an obscene amount given the market.
“I check on a variety of websites when I’m looking for tickets or some shoes for resale,” she said. “I make sure I am getting the best deal which means putting in the time to look around the marketplace so I don’t get ripped off. I know the prices are going to be higher than the retail ones, but I want to make sure I am not paying more than the demand would indicate.”
Still, the scalpers had the supply of tickets that naturally generated profits. In order to get a ticket, customers had to go through the scalpers which makes the business flow. While not able to rip people off, the scalpers remained influential in the market.
“Our long answer is that the internet has made secondary ticket markets more competitive by moving most of the trading from parking lots to online resale market-places where consumers can more easily compare the ticket deals offered by different sellers,” said Harrington in his study.
The scalpers harbor the supply from the consumer, centralizing the market into the scalpers’ hands. In wake of the new generation of video game consoles, the scalpers bought over the need to obtain supply into the video game market.
The recent release of the Playstation 5 and the Xbox Series X on Nov. 12 marked a new generation of video game consoles. The previous generation, which was released in November 2013, lasted seven years with the Playstation 4 and Xbox One debuting with ample stock at release. This new generation cannot say the same as pre-orders for the new consoles ran out quickly with the consoles remaining sold out a few weeks after launch.
The first wave of pre-orders came in late September. Scalpers ordered multiple consoles as a way of accumulating stock in order to resell them later. The consoles they ordered led to fewer being available for other customers that wanted a gaming system.
These scalpers used various techniques. The two most common ones were the use of bots and manually purchasing the consoles.
The use of bots is more common in the world of scalping due to their ease of use. The bots hold a place in line so that the scalpers can purchase various items before they sell out.
The manual method relies on the scalper to manually hold a place in line and hope to purchase as many units they can before they sell out. With various retailers having pre-orders, the manual method remains viable when scalping the consoles.
Through the accumulation of consoles, the scalpers hold the power of supply with demand being high for the consoles. Those that missed out on buying the console are left turning to these scalpers to pay their demands or kick rocks.
A group recently claimed to have sold 3,500 PS5’s with the majority secured through the manual way of purchase. Their prices went anywhere from a hundred to two hundred dollars above the retail price of five hundred dollars.
Roger Revelle College junior Trung Hieu did not give in to the demands from scalpers. His love for gaming was enough to look up the resell prices, but he figured patience was the best route.
“I really wanted to get a PS5 on launch day, but I couldn’t manage to get one,” Hieu said. “I tried to pre-order and when they released, but it wasn’t happening. I saw them on Ebay for 800 dollars and I just decided it was too much for me. I got a PS4 on launch day and I didn’t want to miss out on this generation. It really sucks that these people buy a bunch of them and take them away from people that are actually going to use them.”
In an attempt to regulate secondary markets so that what happened to Hieu would not be a regular occurence, state governments passed a series of legislation in an attempt to control the scalpers. The focus was strictly on ticket scalpers. Eric Schroeder and John Fisher discussed such legislation in their article “A Brief Overview on Ticket Scalping Laws, Secondary Ticket Markets, and the StubHub Effect.” Both compiled the bounds of the law when it comes to tickets for an event.
“The current trend in ticket scalping regulation is toward leniency and acceptance of the practice. This movement has taken hold in Congress where The Ticket Act (H.R. 950) seeks “to prohibit restrictions on the resale of event tickets sold in interstate commerce as an unfair or deceptive act or practice.”
The Ticket Act provides a blueprint for states to generate some sort of restrictions on the secondary market.
The state level remains reluctant to pass any sort of restrictions consistent with the Ticket Act. Each state possesses different types of restrictions with varying levels of punishment and application. From where scalpers can sell and how the tickets can be priced, there are levels to the type of restrictions states implement.
“Instead, many states, such as Missouri, Minnesota, and Connecticut, have recently repealed their prohibition against scalping. Additionally, state bills attempting to regulate the secondary ticket market further are generally unsuccessful as recently occurred in Colorado, North Carolina, and Arkansas.”
The federal legislation still remains in the process of being passed. Companies like StubHub and Ticketmaster use lobbying to delay and challenge such legislation becoming federal. The companies and scalpers use their resources in order to keep the booming resell industry as unregulated as it is currently.
The product side of scalping remains unregulated with less discourse happening on a legislative level.
Gaming consoles are receiving more attention currently, but shoes and clothing have faced similar problems: scalpers will buy the most sought after items and give the actual customers less of a chance. With various methods of scalping, the stores end up playing whack-a-mole when trying to stop the scalpers. Since the government is not stepping in, the customer and retailers will not get more control of the market until the next technological shift.
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