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One important part of the chip shortage is the massive amount of price gouging going on. Every IC is being bought up by new 3rd party distributors to scalp to

• hutrdvnj 5y ago
  Scalpers are not the problem as they seem, they are like market makers for stock exchanges. They buy low and sell high, always. The factory could tell you that they're currently out of stock for the next few months, but a scalper will never be out of stock, because their prices rises so high that only very few desperate companies would buy. The point is, it's better to have the option to buy something at a high price, than to have no option to buy at all.
  • Retric 5y ago
    They can only do that by holding onto to supply which makes shortages worse. The same thing happens with ticket scalping at concerts, the difference is it’s more obvious that a sold out concert has empty seats vs supply sitting in a warehouse on the off chance it can be sold at 100x prices.
    • abfan1127 5y ago
      this is false. the supply would be gone at those low prices. Now they can be had for those who want it badly enough.
      • adamc 5y ago
        "This is false" isn't much of an argument. If there is an argument, you should probably provide that instead...
      • basilgohar 5y ago
        Your statement is false. Demand would be met with an increase in supply, satisfying all needs for the product and without the "help" of scalpers who sidestep supply-and-demand by artificially creating scarcity to drive up demand for their own profit. This is no help to anyone but themselves. If there's a legitimate demand that will be used, then there's a good case for production to be increased to meet such demand, and all parties who need something would have their needs met. At no point to scalpers make this system more efficient – they just serve to extract a greater profit from consumers and businesses for their own benefit by the aforementioned artificial scarcity that they make. This is also known as cornering the market, a well-known and despised practice that has been frequently used by morally corrupt individuals who sought only to benefit themselves. Nowhere can nor should the argument be made that scalpers help anyone but themselves.
        • bricemo 5y ago
          Except increase in supply in chips takes 3-5 years
        • lmm 5y ago
          > Demand would be met with an increase in supply, satisfying all needs for the product and without the "help" of scalpers who sidestep supply-and-demand by artificially creating scarcity to drive up demand for their own profit. This is no help to anyone but themselves. There's no "artificial" demand. Think about it - the "scalper" isn't going to buy something that they can't sell on, they'd just lose money that way. (Maybe some of them make bad judgements - but they'll naturally go out of business in that case). > If there's a legitimate demand that will be used, then there's a good case for production to be increased to meet such demand, and all parties who need something would have their needs met. "Scalpers" improve the quality of that signal and make it easier to increase production with confidence. > This is also known as cornering the market, a well-known and despised practice Views on true corners are certainly mixed (there's an argument that it punishes dishonest market makers), but in any case it only applies to buying up the whole supply, which no individual "scalper" does or can.
  • PicassoCTs 5y ago
    Scalpers hedge on the fragility of just-in-time - they milk the short-term thinkers for all they saved in the good times and are thus a healthy part of the market. Why do we praise people betting on actors being hurt by bad decisions like (https://en.wikipedia.org/wiki/Michael_Burry https://en.wikipedia.org/wiki/Michael_Burry) but condemn the same behavior on the smaller scale of physical products?
    • m4rtink 5y ago
      Would they not harm also reguar manufacturers who just want to make a stock of some part before starting a manufacturing run ?
    • the__alchemist 5y ago
      Scalpers hurt anyone launching a hardware product who doesn't have the order quantity to buy direct-from-manufacturer.
      • chrisseaton 5y ago
        I don't get how it hurts anyone to have to pay market rate. If your product doesn't work at market prices, then that's your problem - not scalpers.
        • yxwvut 5y ago
          This kind of perspective where any intervention-free (often equated with 'free market') outcome is ipso facto a socially good outcome is so frustrating because it transcends policy discussions into morality/dogma. Are you opposed to efforts to curtail rent seeking more broadly?
          • lmm 5y ago
            Making honest prices illegal is the most destructive intervention you can do. "Scalpers" aren't rent-seeking, quite the opposite.
        • 5y ago
  • the__alchemist 5y ago
    Negative. Like scalping everywhere, they're middlemen who contribute nothing to society, and make it more difficult for people who do.
    • blevin 5y ago
      Some have argued that scalpers, like other risk arbitrageurs, accelerate market price discovery. If you buy the argument that markets are net positive for society by relaying information about economic trade offs, scalpers aren’t necessarily bad even if they are indeed annoying to market participants by lifting the ask. Of course there are extreme conditions where we also might decide that using money as the universal conveyance of value is a bad thing because it reveals how unequal outcomes in society have been… And the usual response is to shift to rationing rather than price to allocate scarce resources. But with rationing you get sidechannel markets and not necessarily efficient allocations.
      • Swenrekcah 5y ago
        This argument feels wrong to me. If there is a market for the chip, it will find a market price. If there isn’t there isn’t. If the market is in an equilibrium and the chip manufacturer makes some money on their chips, and the chip buyers make some money on their products, the a scalper coming in and sucking up all the profit isn’t doing anybody in the world any good except themselves.
        • skybrian 5y ago
          Equilibriums don’t just happen by themselves. When there isn’t an equilibrium, delaying sales by keeping inventory helps the people who didn’t plan ahead. The ant planned ahead for the winter, the grasshopper didn’t, and the scalper provides a service to the grasshopper, for a price.
        • medvezhenok 5y ago
          The scalpers don't suck up profit, since if there is a functioning market, you can't really scalp. Scalping exists when there is a discrepancy between a marked price and the market price of an item. If scalpers were not a thing, you would have shortages. With scalpers, you still have shortages, but you can acquire the good by paying a higher, market clearing price. That higher price either makes it so that rich people can get the thing (most don't like this), or that people who really need it can get it (i.e. lifesaving medication etc). So your view of scalpers might be influenced by the distribution of (1) and (2) going on.
  • 10000truths 5y ago
    It depends on what is causing the lack of supply. If the bottleneck lies in factors beyond the control of consumers, i.e. discontinued production, or shortage of raw material, then I see no inherent issue with scalping. But if it’s the scalpers themselves that cause an otherwise plentiful supply to become scarce, then they are the cause of the shortage, rather than the effect, and their behavior should be curbed. The problem is that the former situation can easily lead to the latter via a panic buying feedback loop, and it’s not entirely clear where the distinction should be drawn.
    • pishpash 5y ago
      They could only do that by cornering the market, but if there are many competitive scalpers, then the price is right and that's just normal supply (at the source supplier, not the scalper) and demand.
      • esyir 5y ago
        Except that your markets are not perfect, your scalpers have overhead and now represent a middleman who wants their cut.
        • pishpash 5y ago
          If the buyers could participate in a bidding market directly at the supplier, there would be no need for this overhead. The overhead you speak of is the cost of running a liquid market for a particular good where none existed.
  • TeMPOraL 5y ago
    The way I see it, this makes sense in a hypothetical world of perfect theoretical models (you may recognize this world as being the one inhabited by frictionless, perfectly spherical cows). In this world, scalpers cause the market to price in "stickiness" - the more critical an item is to the buyer, the more they'll be willing to pay - so the supply ultimately gets allocated to the most desperate of buyers, for the price of "your entire margin", or possibly "literally all you have", if the buyer's survival depends on it. Maybe this makes sense in that theoretical world - where there's no inertia, no friction, no capital investment, no jobs and livelihoods tied to the outcome. But in reality, scalping seems to be the purest form of parasitism. In a crisis, scalpers' activities may kill perfectly fine companies (or people) who would've otherwise limped through the rough times and survived, upsetting an industry long-term, and it forces everyone to waste their money. And even if you think that this kind of market culling is fine, I'm not seeing why all that money should go to the first asshole who managed to secure a large loan in time to buy off the entire stock of some good.
    • dahart 5y ago
      This actually is the idea with truly “free market” thinking, no? The money wasted in a crisis, and the companies killed who would’ve otherwise limped through, is all assumed to be less waste and a better outcome than the alternative we get if we prevent scalpers and/or cap the prices. In this theoretical world, we waste more money when supply runs out too fast, and we get companies that are not as good at competing because they limped through. The big question economically is whether these assumptions are generally correct. We have evidence in both directions, enough that most people can comfortably stick to their opinions and learned assumptions and political tribes. But is there a way to demonstrate that the money wasted is greater with hoarding/scalping than without, and under what conditions?
      • awakeasleep 5y ago
        Actually the original ‘free’ in free markets meant free from economic rents
        • 5y ago
  • jimmydorry 5y ago
    Except this is not really what market makers do. The amount of liquidity they can provide by buying high and selling low is quite limited, not to mention it locks up a lot of capital in market price speculation with the significant risk of 'getting it wrong'. Without going into motivation behind why ($$$), they will sell any share in demand at the prevailing market rate. As long as they later buy the same number of shares that they sold into the market, everything continues to work. By internalizing and batching orders, they can also exhert force on the price to ensure they don't lose on these 'market making shorts'. For your example to be equiavlent, scalpers would need to sell parts that they don't have, which falls apart as an analogy as such games would fall apart quite quickly during a supply crunch.
  • op00to 5y ago
    You ignore that a scalper can easily slip counterfeits into the mix. An authorized reseller would be ruined if they did that.
  • mey 5y ago
    They make supply chain validation problematic and introduce room for fraud. Not saying market making is bad, just in this case loosing supply chain validation may be worse.
  • newswasboring 5y ago
    You are literally defending unnecessary middlemen. They add no value, all they do is create artificial scarcity. If they didn't exist someone would have made use of the chip. Instead they hoard it. I don't understand why you find this ok behavior
  • polskibus 5y ago
    They are similar to a market maker but it's not the same. They are like predatory HFT, benefiting from fast information propagation. Most of the time the market would function well without them, with much less volatility in the price. In that sense, scalpers en masse are destabilizing the economy.
  • amelius 5y ago
    > Scalpers are not the problem as they seem, they are like market makers for stock exchanges. They buy low and sell high, always. How do you feel about scalpers who do not act in scarcity but instead create the scarcity themselves. Like those who buy up land in popular cities?
  • bildung 5y ago
    > The point is, it's better to have the option to buy something at a high price On a macro level this doesn't change anything (besides distribution in a limited way), as this doesn't increase production, or am I missing something?
  • raxxorrax 5y ago
    Question is if that really provides benefits for the economy though. For scalpers and the stock market alike.
• codazoda 5y ago
  I think this would be against the law in the U.S. (although probably hard to prosecute). After looking through a few of these, however, it looks like most of them are in other countries, so different laws apply.
  • chmod600 5y ago
    Against what law? Isn't speculation pretty normal in a lot of markets?
    • ajmurmann 5y ago
      There are laws against price gouging. I believe those only apply during emergencies. Personally, I believe it's manufacturers not asking for the price the market is willing to pay and scalpers taking advantage of that. Charging real prices also can prevent hording in certain emergencies.
      • simonh 5y ago
        Manufacturers aren’t always able to charge real market prices in a flexible way. They rely of regular reliable order volumes and can’t charge different prices to different customers, and can’t vary prices easily day to day so can’t take advantage of the fact different customers are willing to pay different prices. They also often don’t have distribution and extensive dispersed inventory, so can’t offer different prices to different geographic markets, or different markets with particular volume requirements, or different order/delivery latency tolerances.
• TedDoesntTalk 5y ago
  Why do the scalpers get first dibs on the supply?
  • beebeepka 5y ago
    That's the right question. As Huang said a few years ago: the more you buy, the more you save
    • TedDoesntTalk 5y ago
      In concert ticket sales, scalpers get preferential treatment because: 1. nepotism: they know someone who works at or owns part of the venue, or the performer, or the performer's manager, etc 2. they reliably buy in bulk 3. corruption: they pay off someone on the inside. so which is it here?
      • jandrese 5y ago
        4. The scalpers are the same company that sells the tickets.
    • taffer 5y ago
      > As Huang said a few years ago: the more you buy, the more you save This is what wholesalers do: they buy large quantities at low prices and then sell small quantities at high prices.
      • nosianu 5y ago
        Wholesalers' key contribution is distribution though. They have actual infrastructure and do real work that is actually useful. They also do this continuously, providing a stable service, and not just sometimes to get in on some market swings.
• jdasdf 5y ago
  > One important part of the chip shortage is the massive amount of price gouging going on. There is no such thing as "price gouging". It just so happens that at this moment the price of things is higher than it usually is due to increased demand and reduced supply.
  • zamadatix 5y ago
    Price gouging is a real thing and "the price of things is higher than it usually is due to increased demand and reduced supply" is actually part of it's definition. I.e. price gouging isn't a replacement for the supply/demand model rather a description in certain extreme cases of said model, often regulated cases depending on the jurisdiction. Traditionally it referred to traditional survival items though, not just any item.
  • nicoburns 5y ago
    Increased demand doesn’t increase prices on its own. The seller also has to Choose to sell at the higher price.
• wallaBBB 5y ago
  General electronics yes, but automotive ICs are not in free sales and can't be stocked by 3rd parties. Also giants like apple, amazon,... buy directly from the manufacturers with orders being made often a year in advance. This shortage is so big that the 3rd party scalpers are insignificant contributor to it.
• coryrc 5y ago
  What's the difference between scalpers and Digikey hypothetically raising their prices sixfold?
  • leppr 5y ago
    It's better that the producer gets the correct price for their items. That way they can invest in their infrastructure or bid up source materials, getting closer to being able to meet demand. On the other hand profits going to the scalpers doesn't contribute towards fixing the problem.
    • fortran77 5y ago
      Digikey isn’t a producer.
• taffer 5y ago
  > Having scalpers in the mix raising the price for all components worries me that the chip shortage might not end for many years, as they can self-fund by raising their prices to stock up on new supply. How do the scalpers get the supply before someone else gets it? What do the scalpers do when IC manufacturers increase supply and electronics manufacturers decrease demand by switching to similar components? What if one of the scalpers panics, dumps its inventory, and causes a price drop? The whole situation could just as quickly turn into the opposite when production returns to normal.
• bsder 5y ago
  > Having scalpers in the mix raising the price for all components worries me that the chip shortage might not end for many years, as they can self-fund by raising their prices to stock up on new supply. Tough. Then run a fab or start carrying inventory. Just-in-time and fabless had risks that everybody simply ignored over and over. I'm happy to see companies taking it in the shorts for that. Everybody loves the "free market" when it works in their favor and whines when the same winds turn around and bite them in the ass, personally.
• rabbitsbynight 5y ago
  I really enjoyed this comment and the thread it started. I wrote some thoughts as a little blog post, and would welcome any thoughts or contrary opinions (I'm no expert, just thinking out loud). https://rabbitsbynight.notion.site/Scalping-vs-price-gouging-9ebc5585d2ec43858f8470c96f16edcd https://rabbitsbynight.notion.site/Scalping-vs-price-gouging...
• Cthulhu_ 5y ago
  Scalpers - and others willing to pay a premium from the supplier - will in all likelihood (IANAEconomist etc) cause a whiplash / bullwhip effect; scalpers create high demand, manufacturers increase production and continue to do so until the market is saturated, then suddenly the scalpers have huge stocks of e.g. chips and can no longer sell them at a premium, making them drop prices to match the manufacturer's.
• hamilyon2 5y ago
  There is no better wat to encourage additional production/reuse/alternatives. Shortage just tells binary signal, prices lets you actually esimate how much this and that will cost.