The strange story of eBay Playstation 3 auctions

I’m not a gamer. I wrote video games 25 years ago but stopped when game creation became more about sizzle (graphics) than steak (strategy.) But the story of the release of the Playstation 3 is a fascinating one. Sony couldn’t make enough, so to get them, people camped out in front of stores, or in some cases camped out just to get a certificate saying they could buy one when they arrived. But word got out that people would pay a lot for them on eBay. The units cost about $600, depending on what model you got, but people were bidding thousands of dollars even in advance, for those who had received certificates from stores.

It was amusing to read the coverage of the launch at Sony’s own Sonystyle store in San Francisco. There the press got bored as they asked people in line why they were lining up to get a PS3. The answer most commonly seemed to be not a love of gaming, but to flip the box for a profit.

And flip they did. There were several tens of thousands of eBay auctions for PS3s, and prices were astounding. About 20,000 auctions closed. Another 25,000 are still running at this time. Some auctions concluded for ridiculous numbers like $110,000 for 4 of them, or a more “reasonable” $20,000 for 5. Single auctions reached as high as $25,000, though in many of these cases, it’s bad news for the seller because the high bidders are people with zero eBay reputation who obviously won’t complete the transaction. In other cases serious sellers will try to claim their bid was a typo. There are some auctions with serious multiple bidders that got to 3 and 4 thousand dollars, but by mid-day today they were all running about $2,000, and they started dropping very quickly. As I watched in a few minutes they fell from $1,500 to going below a thousand. Still plenty of profit for those willing to brave the lines.

It’s interesting to consider what the best strategy for a seller is. It’s hard to predict what form a frenzy like this will take, and when the best price will come. The problem is eBay has a minimum 1 day for the auction, so you must guess the peak 1 day in advance. Since many buyers were keen to see the auction listing showing that the person had the unit in hand, ready to ship, the possible strategy of listing the item before going to get it bore some risks. Some showed scans of their pre-purchase.

The most successful sellers were probably those who picked a clever “buy it now” price which was taken during the early frenzy by people who did not realize how much the price would drop. All the highest auctions (including those with fake buyers) were buy-it-now results. Of course, it’s mostly luck in guessing what the right price was. I presume the buy-it-now/best-offer feature (new on eBay) might have done well for some sellers.

However, those who got a bogus buyer are punished heavily. They can re-list, but must wait a day to sell by auction, and will have lost a bunch of money in that day. If they can find the buyer they might be able to sue. If they are smart, they would re-list with a near-market buy-it-now to catch the market while it’s hot.

Real losers are those who placed a reserve on their auctions, or a high starting bid price. In many cases their auctions will close with no succesful bidder, and they’ll sell for less later. Using a reserve or high starting bid makes no sense when you have such a high-demand item. Those paranoid about losing money should have at most started bidding at their purchase price. I can’t think of any reason for a reserve price auction in this case — or in most other cases, for that matter. Other than with experimental rare products, they are just annoying.

Particularly sad was one auction where the seller claimed to be a struggling single mom who had kids that lucked out and got spots in line, along with pictures of the kids holding the boxes. She set a too-high starting price, and will have to re-list.

Another bad strategy was to do a long multi-day listing.

It’s possible the rarity of these items will grow, as people discover they just can’t get one for their kids for Christmas, but I doubt it.

The other big question this raises is this: Could Sony have released the machine differently? Sony obviously left millions on the table here, about 30 to 40 million I would guess. That’s tolerable for Sony, and they might have decided to give it up for the publicity that surrounds a buying craze. But I have to wonder, would they not have been better served to conduct their own auctions, perhaps a giant dutch auction, for the units, with some allocated at list price by lottery or for those willing to wait in line so that it doesn’t seem so elitist. (As if any poor person is going to buy a PS3 and keep it if they can make a fast thousand in any event.)

Some retailers took advantage of demand by requiring customers to buy several games with the box, presumably Sony approved that. With no control from Sony all the retailers would be trying to capture all this money themselves, which they could easily have done — selling on eBay directly if need be.

I predict in the future we will see a hot Christmas item sold through something like a dutch auction, since being the first to do that would generate a lot of publicity. Dutch auctions are otherwise not nearly so exciting. When Google went public through one, the enemies of dutch auctions worked to make sure people thought it was boring, causing Google to leave quite a bit of money on the table, but far less than they would have left had they used traditional underwriters.

On a side note — if you shop on eBay, I recommend the mozilla/firefox/iceweasel plugin “Shortship” which fixes one of eBay’s most annoying bugs. It lets you see the total of price plus shipping, and sort by it, at least within one ebay display page.

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His name is Brad Templeton. You figure it out.
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