Tuesday, May 27, 2008

Winner's Curse? Gift Certificate Scalping?

Puzzle: Why are Amazon gift certificates selling for more than their face value on Ebay?? For example the Ebay auction above shows a $280.13 Amazon.com gift certificate, with 9 bids, a high bid of $294, and more than 5 days to go until the auction ends?

Check out more examples here, here, here and here.

Comments welcome.


At 5/27/2008 1:28 AM, Anonymous Anonymous said...

Ebay has or had a promotion where you could get a credit towards purchasing items if you did some silly thing or another....

These people could possibly be redeeming those promotional dollars, and thus their out of pocket expense is actually LESS than what they bid.

Just a thought.

At 5/27/2008 2:24 AM, Blogger thomasblair said...

This reminds me of another conundrum I've seen on Amazon. I've noticed it with textbooks especially, but do not know if it's limited to just textbooks.

See here: http://tinyurl.com/45ua43

This is a page for a thermodynamics text I've used. The first three Amazon Market listings are representative of the book's value on the used/new market. The next two (4th and 5th) are considerably more than the value of the book and the last is outrageously higher than the value of the book.

I've long thought that Amazon, eBay and other online auction/market style sites are used as a vehicle for money laundering. Admittedly, this is small-scale, but done enough, this can add up to a sizable method for cleaning a money trail without using traditional financial institutions with reporting requirements.

Consider this text. $400 is an outrageous amount for this particular text, yet for this text there are listings for a $400 copy of the book. This situation is found for many other texts and it could be the case for other products, too, though I've not taken the time to sort through Amazon to note other instances.

The person wanting to launder money purchases a number of $400 texts and gets money orders from area grocers, gas stations, and perhaps even banks. The money orders are sent (or not) and are cashed, leaving a legitimate receipt for purchase (the Amazon invoice) and a clean chunk of money.

Just a thought. It's probably not fleshed out enough to be interesting, or else I've overlooked some key fact that unravels my idea, but I cannot think of any good reason to list an identical text (no author inscription, etc) and charge 4x what others do. I don't imagine it's a typographical error, as it occurs too often and the sellers usually have sizable feedback scores.

Just a thought.

At 5/27/2008 7:27 AM, Anonymous Anonymous said...

I agree with the previous post to this one. On a site such as Amazon where actual money is worth just as much as regular currency, it makes no immediate sense as to why someone would be willing to dump extra money to gain a gift certificate. It implies that this person values this gift certificate more than they value the currency which, in theory, should be worth the same or even more.

Money laundering seems to be the next logical answer, especially if you like assuming the worst in people. This particular person might not be the smartest launderer though if this is the case, since there are much less wasteful and less suspicious looking ways of changing out your dirty or hot currency.

At 5/27/2008 7:49 AM, Blogger thomasblair said...

I should clarify. I didn't mean that the purchase of Amazon gift certificates is laundering. I was talking (in my one specific example) about textbooks priced ridiculously above market price. The gift certificates in the original post aren't selling for any significant premium over face value and can only be redeemed at Amazon. I'd go with the first poster's idea on this particular instance - that eBay has or has had some credit for certain purchases. There has to be some financial incentive to cause people to pay out more in cash than they can redeem the certificate for.

At 5/27/2008 8:58 AM, Anonymous Anonymous said...

I've seen this for years on Ebay. People want to win. It is an emotional response. I see people all the time bidding more for an item that they could easily get cheaper with a quick web search! It is a game and it is about winning.

At 5/27/2008 9:04 AM, Anonymous Anonymous said...

In a mass market you get anomalies of this type with probability almost 1. They arise because of participants who turn it into a negative-sum game. Examples are recreational participants and for those the outcome (profit or loss) is not of importance but they gain value purely from participation, an external benefit which they value more than the difference between the certificate worth and what they pay for.

Another example is retail forex traders. Anyone who participates in a zero-sum forex game dominated by professional players and uses huge margin should know that he will lose, sooner than later. Yet, million around the world participate and lose instead of putting their money in a savings account. Some do it because they gain benefits other than monetary profits, adrenaline rise, etc.

The explanation may be simple then. Again, in a large participant market, you can always find anomalies of this type due to some participants enjoying external benefits other than making money, in this particular case the thrill of participating in an auction values at about $14.

Very good detection of an anomaly though.

E. Harokopos

At 5/27/2008 9:20 AM, Anonymous Anonymous said...

The seeling point for the gift certificates is the financing. The ad states: "Make no payments for six months." This is another example of our compatriots living beyond their means.

At 5/27/2008 12:09 PM, Blogger Andy said...

Everyone here is assuming the bidder will actually pay the full amount after the auction is over. In my experience as an eBay seller, there's a good chance that won't happen.

At 5/27/2008 2:52 PM, Blogger OBloodyHell said...

I've long ago noticed this, which is why I've mostly ignored E-Bay all along. I would try to get a deal yet I'd constantly see the price of something I wanted go above the lowest online retail price I had found.

I see it as a result of two factors:

1) Idiot "autoupdate" bidding systems -- usually encouraged by the operating web site (in this case, E-Bay, but other auction sites, too). People often don't configure these with the idea that the price should not go above a reasonable percentage of the price+S&H. They just tell it to keep bidding it up.

2) People don't always learn what the actual lowest online price they can get is. This leads them to bid the price higher than it ought to be because they perceive it as a deal even when it clearly isn't.

I'm sure the whole "I Want to WIN!" crap applies, too -- certainly that's been suggested by the E-Bay commercials, but my own experience with auctions (my grandfather was a founding member of the Fla. Auctioneers Assoc., and performed auctions from the 30s to the late 80s) is that people have more sense than that, generally.

I think it's just sloppiness in learning the value of what it is that they are buying which is the main factor.

At 7/27/2008 3:34 AM, Blogger Unknown said...


25% off any buy it now purchase


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