Prices are often higher in secondary markets than in primary markets. This is well-known phenomenon. Yet economists cannot agree on why it happens. Because economists can’t explain the phenomenon they are inclined to dismiss it as an example of irrationality. Primary sellers should just increase their prices is an argument we often hear. Mark Perry points to an example in the wine industry:
That was the conundrum facing a select group of Screaming Eagle mailing-list members this past summer when California’s most famous cult label released 100 six-packs of a 2010 Sauvignon Blanc priced at $1,500 each. The wines started showing up at auction soon thereafter, with a six-bottle lot in its original wooden case selling for $15,535 at a Spectrum auction in June. Screaming Eagle’s representatives weren’t happy, announcing that they would limit the 2011 production to just 300 bottles.
Mark Perry argues that reducing output doesn’t make economic sense. I tend to agree with him on that point, but what about the broader issue?
I’m less inclined to dismiss this sort of behaviour as being irrational – there is some sort of information asymmetry or risk-sharing going on.
Now the wine seller is unhappy about the on-selling, they have a quality control argument, and have excluded the on-sellers from their network. That is their choice – their private choice. On the other hand many states are passing ever draconian laws against scalping; that should be avoided as it undermines price discovery.