It seems inevitable that a story like this will appear every few months or so. When it happens, the comments section is sure to be filled with a few loud voices expressing their disgust that some people are buying beer at one price and then reselling it at a much greater price, typically through some outlet like eBay that tries and tries (and fails and fails) to stop it.
I’ve blogged about this before (here and here and here).
Here’s the deal, I’ll make it as simple as I can:
There is no “fair price” for a product. The proper price for any product is high enough that all the product gets sold and nobody who wants one at the current price doesn’t get one. That’s the law of supply and demand, that’s “economic efficiency,” that’s “market equilibrium.”
In other words, if you make 1,000 bottles of beer, you need to ask yourself “What is the price I need to sell it at so there are exactly 1,000 people who will buy it at that price?” Charge too little and not only do you “leave money on the table” as they say, you will make someone unhappy because there will be [at least one person] who wanted the beer at the offered price, but didn’t get it. Charge too much and you have beer left over you have to toss.
Limited releases are more valuable. The wider the interest in the beer (because of “quality,” “hype,” or just obsessive “ticking) the more valuable it is.
If a brewer’s beer is being subject to arbitrage then it is the brewer who is at fault. Period. If someone can get away with the selling a bottle of beer for $25 then the fair market price for that beer is ….$25. Period.
This particular CNN article shows its particular bias by refering to this practice as “price gouging.” This is not price gouging. Price gouging is what happens when an “unfair” price is placed on something and there is no other option but to purchase it at the exorbitant rate. The place you’re most likely to see it is after a “supply shock,” like a hurricane makes it impossible to deliver gasoline or workers at a refinery go onstrike. The product is a either necessity or the the supplier has an unwarranted, unjust monopoly. And in this way, there is no choice but to pay the higher, unfair price.
What sets the beer arbitrage market apart from “price gouging” is that Pliny, Dark Lord, Heady Topper, and the rest are not necessities. No one has to buy them. They are not necessities. And no brewer has a monopoly on IPAs or Imperial Stouts or collaboration ales using ancient ingredients.
One of the proposals to stop this is to only sell draft lines, which necessitates getting to the brewery in order to have it.
But check this:
The bottle price is only one part of the cost. I used to live 2.5 hours from Three Floyds. I went there for Dark Lord Day a few years back. And bought a bottle. I don’t remember how much I paid. Let’s say it was $15. But I also drove there. At the time I was making $11 an hour. I also had to drive there, about 320 miles and back. I rode with two other guys so I can defray some of the cost.
- Bottle of beer: $15
- Time: ($11 X 5) = $55
- Gas: ((320mi/22mpg)/3) X $3.50 (avg price of gasoline at the time) = $16.97.
If I made no profit on reselling this beer, the full cost of the beer was $86.97.
Would that have been “fair”? What if I would have flown? Could I have gotten reimbursed for the plane ticket in my resell costs? Since buying from someone like me was the only way that many people could have gotten that beer, then it seems that $87 is a totally justified price. Oh! And did I mention that I had to wait online in order to be one of the first to buy a ticket to attend DLD? And that the start of sales was announced on Twitter? So I spent several minutes just staring at a screen and hitting refresh. Then I had to go through the purchasing process, which was slowed down due to intense volume? Did I mention that due to a banking error, when I got all the way through the process my payment would not process, which meant I had to call my bank and spend 2o minutes on the phone with them to get it sorted out. When that was done, naturally, tickets were sold out. So I had to cash in a favor from a friend to get my ticket to start with. Should I tack on another hour for all that crap? I think I should.
Had I been able to get the beer through an established logistical system of brewer–>warehouse–>distributor–>warehouse–>retailer that could benefit from economies of scale the price would have been significantly lower. But in the world we live in where Dark Lord was only available for purchase in Munster, IN on the Dark Lord Day then the true value of that beer for anyone not living in Munster was approximately $100 plus some added incentive for someone to undertake the entire process. Maybe 20%? …so $120. If I could sell the beer for $120 I would have benefitted and the person who bought the beer would have benefitted.
OK. So now consider that it would have cost me $250 to fly to Vermont to go get a Heady Topper. And then I had to rent a hotel room ($50). And take a day off work (a holiday day, but still worth a full days wages ~$200). That’s $500 plus the cost of the beer! If, instead, I could buy a Heady Topper over the internet for $25, is that not an AWESOME deal? I save $475 and the person on the other end makes a few bucks. “Price gouging,” indeed.
The bottom line is that the beer is “worth” what people will pay for it. The fact that they want it enough it pay incredibly high prices for it is testament to the brewers. I don’t care if it’s hype or true quality–whatever the reason, people want the beer. And they are happy to get it at the price they pay, no matter how ridiculous that price seems tho those of us who would never plop down $25 for a 16oz bottle. The seller benefits. The buyer benefits.
If you’re argument is: Well the brewer’s should be the ones who profit off their hard work. I agree! The solution is to have the brewer’s charge the real price for the beer. It’s that simple.
If you’re argument is: The desire is only high because the supplies are so limited. I agree! The solution is (1) make more [if possible] or (2) raise the price. Nothing beats the mad desire to purchase a thing like making it expensive.
If you’re argument is: The internet buyer isn’t getting a quality product because it probably wasn’t packaged properly and got all hot and shaken up in transit. I agree, but that’s clearly irrelevant and up to the buyer, not you.
In other words. It’s the brewer’s fault.