Exactly. It's a hobby, but while scaling it up is hard to do, it is not impossible. Two stories.
I wrote a program awhile back that would look for iPod Touches on my local Craigslist and would analyze the price for many different versions. If an individual iPod was available and was below mean price within a given time frame, I'd send the seller a note almost immediately. Then, if I purchased the item, I'd relist it at the mean price. Completely an arb play.
What I learned was that 1) iPods are easy to sell, 2) People who buy on craigslist are flaky and tend not to show up, 3) The time spent waiting around to meet people was obnoxious, and 4) Sometimes sellers see what you did with their item and send you angry emails.
I never made more than a few hundred bucks, but it was an interesting experiment nonetheless.
Second story: For years, my wife sold used books. She'd go to estate auctions and buy boxes and boxes of books. She'd go to library sales and buy hundreds of books. Then she'd sell them on the Amazon marketplace. She would walk into these places with a barcode scanner and would check their price and sales rankings on Amazon. If it was in a decent margin for her, she'd buy the item. This actually did scale, but she quit when it became less of a hobby side income and more like real work. She's a nurse by trade, and the book selling was never meant to be anything more than a hobby.
So, I guess what I'm trying to say is that arbitrage of used goods can be a business, but it depends heavily on the availability of the supply of used goods. Books worked for my wife because she could buy dozens of them at a time and ship dozens of them them all from the post office down the street as orders came in. For me, I was running around town picking up items and dropping them off.
Arbitrage is technically a set of simultaneous transactions where you buy and sell at the same time. Purchasing something and reselling it later for a higher price is not arbitrage.
It is usually used to describe a riskless transaction.
I'm not sure I agree with the description of arbitrage as "riskless". The arbitrageur is accepting the risk that the arbitrage opportunity will go away in between the buy and the sell. This is true whether you're arbitraging salt via caravans across the Sahara or arbitraging currencies in millisecond trades.
It's the idea of simultaneous transactions that makes it riskless. Whether millisecond forex trades can be modeled as "simultaneous" is another question.
If you want to get more precise, the benefit of simultaneous or near simultaneous transactions is reduced risk that prices will fluctuate. Arb is just an exploitation of different prices in different markets.
I've posted this before but I've made half decent money in small batches by purchasing crates of assorted goods at live auctions. Police auctions are sometimes good for this, as they may just load a heap of stuff onto a pallet and sell the pallet as a lot. Most people don't want to buy a pallet full of junk, but you can get lucky if you scope it out before the auction and look for valuable items. Same goes for office liquidations - you might get a bulk lot of 10 LCD monitors or laser printers or something like that. You can sell the first 1 or 2 on eBay, get your capital back and the rest is pure profit. It's also easy if you buy a bulk lot because you only need to write the listing once and just keep repeating it, plus you can get a feel for what days/times bring the most bids.
It's not terribly scalable because you need to have transport and time to attend auctions, plus somewhere to store the stuff. But if you have a decent sized car/pickup, proximity to auctions and a nose for a bargain, you can pick up some good pocket money with this strategy.
Incidentally, I think the market for the pricenomics data is precisely the same as the KBB market - detailed lookup via mobile app for people who are buying/selling regularly. A good pawnbroker/2nd hand dealer/auctioneer will know the price point on a wide range of goods, but allowing people to purchase this information for a reasonable price will help both people starting out, and also professionals stepping outside their bread and butter.
I would suggest a freemium model, where the free version gives you a price range, and the pro version gives you a very direct price.
> 2) People who buy on craigslist are flaky and tend not to show up, 3) The time spent waiting around to meet people was obnoxious, and 4) Sometimes sellers see what you did with their item and send you angry emails.
This is why you buy in the small and isolated market (craigslist) and then sell in the larger market (ebay) where you don't have to find people and waste time and money delivering the item to the person.
Interesting. But wouldn't it be better to buy on ebay and sell on craigslist? That way you don't have to drive around to pick up stuff and people come to your house to get things so you don't have to mail it out.
In places like ebay the sellers are a tad more experienced and they have more exposure to the "market price" so it's harder to get a better deal. You could still get a small deal and try to sell for an inflated price on craigslist, but I'm of the opinion that it's just easier to find buyers who will buy at the market price on ebay rather than buyers who will buy for an expensive price on craigslist. Even more so with specialty / collector style items.
A friend of mine runs a larger-scale version of the used book business your wife used to run. She started out buying books from estates and old people looking to downsize. She'd take anything, paying a flat rate of something like 10 cents a book, and would show up at your house and haul away all the books. Then she'd list all the books on Amazon. Even if the book was selling for one cent she would make money on the shipping, since shipping costs slightly less than Amazon's shipping allowance (unless the book weighed over a certain amount and thus she'd lose money on shipping, in which case she'd recycle it, as she did with books in unsaleable condition). After a while she built bookshelves in her garage which let her store I believe tens of thousands of books, and hired people to do the book listing and shipping for her. She also moved on to more large-scale ways of acquiring books, like arranging with churches and schools to pick up the books that people left in their donation boxes. Every so often there'd be a volume that sold for $100, but the great bulk of the predictable cash flow came from making less than $1 for a large number of books sold each day.
I got a few where people were mad that I simply re-listed their item at a higher price than they sold it for. I'm sure they felt duped for undervaluing their product in the first place. As binarysolo pointed out in this thread, some sellers feel they need to urgently sell their items, so they under-price. I'd could afford to wait for someone to pay my asking price.
Instead of being angry that they didn't maximize their profits, could it be that the sellers were _offended_ that someone would maximize profits with their possessions? I can imagine a couple reasons:
1) The Toy Story 3 plot: people want to find a home for their possessions with people of similar interests. They become angry that you are reducing the consumer surplus that would have gone to the ultimate buyer.
2) They realize that arbitrage on a first-come-first-served marketplace can reduce the value of the marketplace as a whole, since buyers are less likely to find bargains. They recognize your behavior as antisocial and become angry.
The reverse can be true for both of those points. Raising the price to the market-clearing level increases the probability that it gets sold to someone who places a greater value on it.
"The buyer" isn't necessarily constant. Suppose Alice values a widget at $100 and Bob values it at $200, and also that Alice spends much more time on Craigslist than Bob. If you sell a widget for $75 then Alice will probably buy it, which results in less consumer surplus than if you sold it for $150.
Buyers have different motives. As do sellers. Mismatches are common, and when people make a trip to someone's residence to look at product in question (as thru CL), the deal, typically goes through, leaving mismatched feelings about the deal.
I wrote a program awhile back that would look for iPod Touches on my local Craigslist and would analyze the price for many different versions. If an individual iPod was available and was below mean price within a given time frame, I'd send the seller a note almost immediately. Then, if I purchased the item, I'd relist it at the mean price. Completely an arb play.
What I learned was that 1) iPods are easy to sell, 2) People who buy on craigslist are flaky and tend not to show up, 3) The time spent waiting around to meet people was obnoxious, and 4) Sometimes sellers see what you did with their item and send you angry emails.
I never made more than a few hundred bucks, but it was an interesting experiment nonetheless.
Second story: For years, my wife sold used books. She'd go to estate auctions and buy boxes and boxes of books. She'd go to library sales and buy hundreds of books. Then she'd sell them on the Amazon marketplace. She would walk into these places with a barcode scanner and would check their price and sales rankings on Amazon. If it was in a decent margin for her, she'd buy the item. This actually did scale, but she quit when it became less of a hobby side income and more like real work. She's a nurse by trade, and the book selling was never meant to be anything more than a hobby.
So, I guess what I'm trying to say is that arbitrage of used goods can be a business, but it depends heavily on the availability of the supply of used goods. Books worked for my wife because she could buy dozens of them at a time and ship dozens of them them all from the post office down the street as orders came in. For me, I was running around town picking up items and dropping them off.