5 ms·

I won't defend all of finance / trading, but maybe this analogy will satisfy you. Think of sports tickets. There is massive inefficiency in the primary market

by leelin 17y ago

I won't defend all of finance / trading, but maybe this analogy will satisfy you. Think of sports tickets. There is massive inefficiency in the primary market, meaning tickets you buy directly from the arena or on TicketMaster. One inefficiency comes from all the season ticket holders who skip the majority of the games and only go to the ones they actually want to see. We can fix this inefficiency on a secondary market (the scalpers, StubHub, etc). A scalper might make a decent take by finding season ticket holders and buying the unused tickets. Then, the scalper sells the tickets to fans who waited too late to buy (or won't pay full price). Now we think the scalper is evil, because he just made money without "adding value." Except he did add value... the season ticket holder and the last-minute-fan wouldn't have found each other without great effort. Both ended up happier than if the scalper didn't exist. Also, the scalper takes on some risk... he guaranteed the price he paid to the season ticket holder, had to hold the ticket, and then determine the correct time to sell. If he held the ticket too late (or got too greedy), the game would begin and he'd have a worthless ticket! We also need to somewhat regulate scalpers because if they have too much of an impact, they can seriously distort and manipulate prices (a very wealthy scalper can buy all the tickets to a popular game and sell them all at 10x the price). This analogy isn't perfect for high-frequency trading or all market making, but I hope it shows why arbitragers both add value and reduce risk yet seem evil to all the participants.

dasil003 17y ago
I don't think they're evil unless the taxpayers happen to be bankrolling their downside.
- anamax 17y ago
  > I don't think they're evil unless the taxpayers happen to be bankrolling their downside. The taxpayers made that decision, so it's unclear why you think that the recipients are evil. I think that the taxpayers made the wrong decision, but ....
  - berntb 17y ago
    Didn't the decision from the representatives of the taxpayers come in partly from both regulatory capture and sheer extortion?
    - anamax 17y ago
      Regulatory capture is a consequence of regulation. Folks who demand regulation are in little position to complain about regulatory capture. As to extortion, the "everything is failing" stuff came from regulators who are still in place. By contrast, the admiral and general in charge of Pearl Harbor on Dec 6, 1941 were replaced almost immediately....
  - dasil003 17y ago
    The evil ones are the ones who happened to be advising the representatives of the taxpayers claiming—with unfathomable conflict of interest—that multiple major banks failing would be a doomsday scenario to be avoided at all costs.
    - anamax 17y ago
      > The evil ones are the ones who happened to be advising the representatives of the taxpayers The advisors weren't significantly different from the representatives. Does that make the representatives more or less evil than the advisors? Does it matter? Given that this is how things are going to be if we have this sort of regulation, are we really benefitting from this sort of regulation? I think that we should always evaluate based on realized benefits and incurred costs, not desired benefits and promised costs. However, our actual policies show that most people disagree with me.
Tangurena 17y ago
If this were the only way that scalpers operated, then I would agree that they'd be a social good. Instead, there are a number of scalpers who wait in line, knowing full well that they're not going to the game/show and they'll sell the tickets to someone who wasn't fast enough to get in line. This sort of thing happened in Dubai, where some folks would buy shares in some real estate venture, and then flip it to someone further back in line.
- leelin 17y ago
  True, but as much as we HATE those guys who line up for the first Xbox360 / Wii / Playstaion 3 trying for the ebay flip, they are technically not doing evil. The ebay flippers allow MSFT / Nintendo / PS3 to charge $1000 on launch day so that demand == supply, but the game companies won't do it for social / PR reasons.
  - codexon 17y ago
    The ebay flippers allow MSFT / Nintendo / PS3 to charge $1000 on launch day so that demand == supply The only winner here is the scalper though. The customer Microsoft, Nintendo and Sony are put in a lose/lose position. The scalpers have the highest profit margin while the real fans who buy the extra games have $500+ less to support the companies that are bringing real value to the market.
    - chops 17y ago
      The only winner here is the scalper though. The customer Microsoft, Nintendo and Sony are put in a lose/lose position. The customer has a choice on whether or not it's worth the purchase. To the customer who values the item (Wii/Sporting Event/whatever) over the (inflated) cost, it is a net gain, not a loss. To the person who doesn't value it above the asking price, they don't have to pay, and they don't have to get the item. I bought my Wii for an inflated price on eBay and I have no regrets about it. I have a friend who bought her Wii at an even more inflated price (almost double the asking price, if I remember correctly), and she also had no qualms about it. Furthermore, scalpers who wait in line for hours to buy tickets/game systems, and then flip it for profit are essentially providing a paid service to those who are too impatient, late, or otherwise incapable of buying said items when they go on sale, knowing that there is a limited supply that will not meet all the demand.
dtby 17y ago
scalper can buy all the tickets to a popular game and sell them all at 10x the price How is this a problem, especially one requiring regulation? Nothing has changed from your original formulation, except apparently that he's now making 'too much money.'
- leelin 17y ago
  Because then the very wealthy scalper has a monopoly, and the monopoly power allows for profit-maximizing pricing, which causes dead-weight loss. It's better the scalper sell 50% of the tickets at 10x (and let 50% rot) than all of the tickets at 2x (and have nothing rot). The scalper will let some tickets rot to preserve the 10x pricing because this is a repeated game. If people know that he'd rather let tickets rot than lower prices at the last moment, they'll have no choice but to buy at 10x or miss the game.
  - imgabe 17y ago
    But there's already a natural monopoly on tickets isn't there? You can only buy them from the venue that the show is taking place at. Surely if they see that the market will bear 10x the price they're asking, they'll just raise the face value price on the ticket. This would make it unprofitable for the scalper to buy them all and resell them, since he could no longer ask 10x the price.
- ubernostrum 17y ago
  Scalpers often have the time, money and incentive to build automated systems which hammer ticket services to buy up tickets which otherwise would have been sold directly to people attending an event. Whenever you hear about a concert or sporting event selling out within a ridiculously short period of time (sometimes 30 seconds after online sales open), it's because of this, and represents the creation of inefficiency rather than the remedying of it. Also, first-party ticket vendors have been known to actively partner with third-party resellers to essentially eliminate the original market. Ticketmaster, for example, owns an online scalping service (TicketsNow) and there have been repeated allegations that they give preferential treatment to their own scalping subsidiary.
artsrc 17y ago
It seems to me the value the scalper providers is an exchange not an arbitrage. Sellers probably don't care when they sell as long as they do. Buyers probably find the lack of transparency inconvenient. If you setup a fair exchange where genuine buyers bid and genuine sellers offered and everything cleared at a specific time at one price for everyone, sellers and buyers would get better prices, which everyone would think was fairer, and all possible exchanges could occur.

by leelin 17y ago

dasil003 17y ago

I don't think they're evil unless the taxpayers happen to be bankrolling their downside.

anamax 17y ago
> I don't think they're evil unless the taxpayers happen to be bankrolling their downside. The taxpayers made that decision, so it's unclear why you think that the recipients are evil. I think that the taxpayers made the wrong decision, but ....
- berntb 17y ago
  Didn't the decision from the representatives of the taxpayers come in partly from both regulatory capture and sheer extortion?
  - anamax 17y ago
    Regulatory capture is a consequence of regulation. Folks who demand regulation are in little position to complain about regulatory capture. As to extortion, the "everything is failing" stuff came from regulators who are still in place. By contrast, the admiral and general in charge of Pearl Harbor on Dec 6, 1941 were replaced almost immediately....
- dasil003 17y ago
  The evil ones are the ones who happened to be advising the representatives of the taxpayers claiming—with unfathomable conflict of interest—that multiple major banks failing would be a doomsday scenario to be avoided at all costs.
  - anamax 17y ago
    > The evil ones are the ones who happened to be advising the representatives of the taxpayers The advisors weren't significantly different from the representatives. Does that make the representatives more or less evil than the advisors? Does it matter? Given that this is how things are going to be if we have this sort of regulation, are we really benefitting from this sort of regulation? I think that we should always evaluate based on realized benefits and incurred costs, not desired benefits and promised costs. However, our actual policies show that most people disagree with me.

Tangurena 17y ago

If this were the only way that scalpers operated, then I would agree that they'd be a social good. Instead, there are a number of scalpers who wait in line, knowing full well that they're not going to the game/show and they'll sell the tickets to someone who wasn't fast enough to get in line. This sort of thing happened in Dubai, where some folks would buy shares in some real estate venture, and then flip it to someone further back in line.

leelin 17y ago
True, but as much as we HATE those guys who line up for the first Xbox360 / Wii / Playstaion 3 trying for the ebay flip, they are technically not doing evil. The ebay flippers allow MSFT / Nintendo / PS3 to charge $1000 on launch day so that demand == supply, but the game companies won't do it for social / PR reasons.
- codexon 17y ago
  The ebay flippers allow MSFT / Nintendo / PS3 to charge $1000 on launch day so that demand == supply The only winner here is the scalper though. The customer Microsoft, Nintendo and Sony are put in a lose/lose position. The scalpers have the highest profit margin while the real fans who buy the extra games have $500+ less to support the companies that are bringing real value to the market.
  - chops 17y ago
    The only winner here is the scalper though. The customer Microsoft, Nintendo and Sony are put in a lose/lose position. The customer has a choice on whether or not it's worth the purchase. To the customer who values the item (Wii/Sporting Event/whatever) over the (inflated) cost, it is a net gain, not a loss. To the person who doesn't value it above the asking price, they don't have to pay, and they don't have to get the item. I bought my Wii for an inflated price on eBay and I have no regrets about it. I have a friend who bought her Wii at an even more inflated price (almost double the asking price, if I remember correctly), and she also had no qualms about it. Furthermore, scalpers who wait in line for hours to buy tickets/game systems, and then flip it for profit are essentially providing a paid service to those who are too impatient, late, or otherwise incapable of buying said items when they go on sale, knowing that there is a limited supply that will not meet all the demand.

dtby 17y ago

scalper can buy all the tickets to a popular game and sell them all at 10x the price How is this a problem, especially one requiring regulation? Nothing has changed from your original formulation, except apparently that he's now making 'too much money.'

leelin 17y ago
Because then the very wealthy scalper has a monopoly, and the monopoly power allows for profit-maximizing pricing, which causes dead-weight loss. It's better the scalper sell 50% of the tickets at 10x (and let 50% rot) than all of the tickets at 2x (and have nothing rot). The scalper will let some tickets rot to preserve the 10x pricing because this is a repeated game. If people know that he'd rather let tickets rot than lower prices at the last moment, they'll have no choice but to buy at 10x or miss the game.
- imgabe 17y ago
  But there's already a natural monopoly on tickets isn't there? You can only buy them from the venue that the show is taking place at. Surely if they see that the market will bear 10x the price they're asking, they'll just raise the face value price on the ticket. This would make it unprofitable for the scalper to buy them all and resell them, since he could no longer ask 10x the price.
ubernostrum 17y ago
Scalpers often have the time, money and incentive to build automated systems which hammer ticket services to buy up tickets which otherwise would have been sold directly to people attending an event. Whenever you hear about a concert or sporting event selling out within a ridiculously short period of time (sometimes 30 seconds after online sales open), it's because of this, and represents the creation of inefficiency rather than the remedying of it. Also, first-party ticket vendors have been known to actively partner with third-party resellers to essentially eliminate the original market. Ticketmaster, for example, owns an online scalping service (TicketsNow) and there have been repeated allegations that they give preferential treatment to their own scalping subsidiary.

artsrc 17y ago

It seems to me the value the scalper providers is an exchange not an arbitrage. Sellers probably don't care when they sell as long as they do. Buyers probably find the lack of transparency inconvenient. If you setup a fair exchange where genuine buyers bid and genuine sellers offered and everything cleared at a specific time at one price for everyone, sellers and buyers would get better prices, which everyone would think was fairer, and all possible exchanges could occur.