Thursday, September 8, 2011

Ebay vs. Beer

Yesterday on Beervana, Jeff commented on a Washington Post article about Ebay's black market for beers.  He really got it stirred up, 31 comments and counting.  Jeff thinks the brewers shouldn't be whining about the black market, they should raise their prices to eliminate it.

I'll go into why I disagree with Jeff below, but first some facts about beer sales on Ebay:
  1. Ebay doesn't allow the sale of alcoholic beverages.
  2. There is a loophole for collectible bottles, if the seller posts a disclaimer that it is the bottle that is valuable, not the beer inside.
  3. For rare beers of recent vintage, that disclaimer is obviously a lie.
  4. If the seller is willing to lie about the value of the beer to make a few dollars, how can you trust them to treat you honestly in the sale?
  5. If you don't like to see beer scalping on Ebay, you can report beer auctions by clicking on the "Report Item" link on the page.  They usually take reported auctions down.
  6. Just for fun, check out the time I auctioned an empty Abyss bottle on Ebay.
Occasionally I will report a beer auction on Ebay, just to strike a blow for honesty in the world.  I am not puritanically opposed to people doing what they want, but if you don't like Ebay's rules, you should find some other way to sell your beer.  Today Ebay took down a Dark Lord auction I reported, but it looks like they are going to leave up an auction by one of their "Top-Rated Sellers" of Stone's Framboise for the Cure, which was one of the scalped beers mentioned in the Washington Post article.

Part of the controversy would disappear if Ebay would simply drop their restriction on beer auctions.  Brewers couldn't complain about profiteering -- they would be free to participate in it if they wanted to make more money off of their products, or distribute to a wider audience.  It would also open the door for honest resellers to develop a reputation for properly handling a somewhat delicate product. Of course, Ebay doesn't drop their beer prohibition because they are constrained by a fractured regulatory system in the U.S., where every state has different restrictions on sale and delivery of alcohol.

Jeff's idea that raising prices will eliminate the black market is ridiculous.  This faith in a magical Market that can correctly determine the price of goods is part of the insanity of our times.  At best, it works in a circular definition sort of way:  the market determines the correct price at any given second because the correct price is what someone will pay.  But it doesn't work in any sort of predictive way:  based on this level of supply, and this level of demand, and this attribute of the product, the price will be such-and-such.  Since it can't predict anything, but can only rationalize what happened, this efficient-market model that modern Americans apply to everything has much more in common with religion than with science.

Given the fact that no one can predict ahead of time the market price of something traded in billions of units -- say, common stock of the Intel Corporation -- how is a small brewery supposed to calculate ahead of time the market price of a beer they made 5,000 bottles of?  Simply put, they can't calculate that.  So they set a reasonable price based on their costs, prices of similar products, and their past experience of what their customers will pay.  Of course they want to make a good profit, but there is also value to them in selling out fast -- they don't have to sit on an inventory, and they can devote more space in their operation to the next production run.

Further reading:
It's interesting how much more pro-Ebay the BAs have become in three years.


  1. Bill - Since you pay attention to eBay you get this question.

    Any idea how many bottles of any particular beer are being sold?

  2. I don't begrudge Ebay for it's prohibition on selling alcohol. It's tough enough navigating the rules for in-state retail sales, much less facilitating interstate commerce. My curiosity with the article - and I'm really trying not to be cynical here - is with the brewers outrage over the practice of reselling their beer. They've created this market by riding and encouraging the over-hype machine. I have no trouble believing many of these beers are damn good, but not to the extreme exclusion of many other damn good beers that receive no hype at all. To have a beer so well renown that people smuggle it out for resale is ridiculously good for the brewery's reputation. Exposure is king in almost all of its forms.

  3. Stan: I have to admit I'm not up-to-date on Ebay, I rarely get on there, and never shop for beer. But just looking at all the "related articles" items that came up today, it feels like more beer is sold there than was 3.5 years ago.

  4. I have to say, I'm with Alan. The breweries expressing outrage is the really annoying part of this. And it's not like they couldn't distribute bottles to different states themselves, it's just not cost-effective to do it. I live in the one market outside of the West Coast where we get Pliny, and even I think the hype around here is ridiculous. I can only imagine what people would do for it on a gray market.

    Let people pay too much for UPSed bottles of beer that may suck. If some jerk makes a couple hundred bucks, I guess that's good for him. Anyone who buys it is not really interested in quality craft beer so much as they are spending extravagantly and owning something rare. It serves as an idiot tax, if nothing else.

  5. You misunderestimate me, sir! Actually, I think most of your pique with my position comes from the comments thread rather than the main post--wherein I mentioned eBay not once. My central point--and I think if I'd not been lured into the weeds of the eBay debate you started (scoldy face)--I would have come out looking better.

    To recap, I argued: (1) that secondary markets do not constitute exploitation of breweries who have already received the price they themselves set on a unit of beer; (2) that if breweries feel they aren't earning enough for their beer--when clearly the market will support far higher prices--they can always raise their own prices; and (3) underpricing specialty beer to heighten interest is a fine idea--so breweries shouldn't complain when these extra limited, underpriced beers find secondary markets.

    I don't suggest that it's possible to eliminate the secondary market (nor do I see why anyone would want to), but breweries have recourse to limit the practice if they wish. The first year Deschutes' Abyss came out--in small quantities--it provoked a massive spike in value on secondary markets. When they started releasing more, you could get it for months in the supermarket. No one was selling that for $100 on eBay.

    I sense in all of this a moralistic argument that it's somehow just unseemly to profit off beer arbitrage, and it is with this that I take issue. Beer is not a sacred trust. It's a commodity. Resell if you can make a buck.

  6. Jeff: I think you're right about there being a moralistic thing here. In my case, my main complaint is the dishonesty. No one is forcing you to sell your beer on Ebay. If you can't follow their rules, be a man and sell it some other way instead of telling a squirrely lie about the contents.

    But I am also pissed about the scalping aspect of it, just as I loathe concert ticket scalpers, who have added no value to the world, just bought up a bunch of things before someone else. Exploiting a limited supply isn't arbitrage, it's price gouging. Don't we still think that's immoral?

    With beer, as you note, the brewery could choose to expand the supply until there was less incentive to buy from a scalper. Although, in the real world of opportunity costs, that isn't an option for every brewery, since it means altering their product mix and possibly dealing with inventory for longer times.

    So where does that leave us? I'm not opposed to secondary markets, but I will continue to disparage dishonest people and price gougers. As for the brewers, I won't knock them for criticizing the scalpers, but I suppose they could be a little more graceful in their statements about it. After all, people coveting your products is the kind of problem you'd like to have.