Sunday, September 4, 2016

eBay and the Great Disintermediation

I have long intended to write about eBay's transformative impact on pen collecting. Having recently touched upon the topic in my Pen Show Frictions posts (Part 2: the Generation GapPart 3: meet the older collectors), it is now time to treat it at greater length.

While there was some online trading before the advent of eBay, the volume was tiny and restricted to a small subset of already-active pen traders. It was an insignificant sideshow, as nearly all trading took place face-to-face: at shows, club meetings, flea markets, live auctions, and antiques fairs. In the USA, there was relatively little retailing of collectible vintage pens. There were not many buyers willing to pay much over pen show prices, and it was not easy to reach them -- even for sellers with bricks and mortar shopfronts.

The flow of vintage pens through the market prior to eBay was a long and inefficient one. An old pen would typically enter the market at a yard sale or flea market after being found in a desk drawer or long-shuttered shop. Bought by a picker, it would then be flipped quickly for a small profit to a local general antiques dealer, who might sell it on to another dealer who knew a little more about pens, or who had a pen buyer as a customer. In this extended food chain, a pen could easily go through several hands before finally being sold at full value to an end buyer. At any point, of course, the passage of a pen could be interrupted by being bought and kept by a buyer paying less than full value, who might well have been outbid had more committed buyers been in on the action. Nor did an end buyer have to buy from a specialist dealer, as there was nothing preventing anyone from hunting lower (and more cheaply) on the food chain -- the tradeoff being that as one went lower, so did the ratio of desirable items to chaff.

eBay's impact was not felt immediately. With only a relatively small number of participants at first, and lacking the search and bidding tools we now take for granted, eBay could turn up nice finds for buyers with knowledge and persistence. Overall volume was still too low, however, for eBay to be more than a minor supplement to pen buyers' traditional sources of supply. This began to change once new buyers -- many from overseas -- who had never been exposed to the existing collector market started to bid up ordinary pens to extraordinary prices. This bidding seemed to be based on a combination of excitement over never-before-seen (by the newcomers, that is) items and the auction version of the Greater Fool principle -- that is, the assumption that one can't go too far wrong if someone else is bidding just as much. By the end of 1998 several boxed Peter Pans had sold for $500-600 each; other pens that were common but of unusual form or design also fetched similar sums. It wasn't just pens: small ladies' watches that dealers hadn't been able to give away suddenly were being bought for hundreds of dollars, for example.

Prices like these quickly attracted a horde of new eBay sellers, and prices settled down as supply moved online to meet demand. Offline, meanwhile, things were changing quickly. The old antiques food chain was coming apart, as those at the bottom started selling directly to those at the top. So did everyone in the middle, even as they began to lose their sources lower down the chain. Thus began the Great Disintermediation, as the middlemen found themselves increasingly cut out of the flow of merchandise through the market. Most saw that things were changing, but couldn't grasp that the changes would be so dramatic and so fundamental. The following years saw the dwindling or disappearance of a host of long-established places and events whose main purpose had been to facilitate dealer-to-dealer transactions, including group shops, wholesale antiques shows, and live auctions. Collector-to-collector events were similarly affected: the New Jersey show was sold by its original organizers around this time for a price in the low five figures, only to be unsuccessfully put up for sale (on eBay!) only a few years later, and eventually liquidated for a nominal sum for the value of its mailing list.

As the middlemen were cut out, the market was flooded with material. It was as if a pipeline had suddenly been drastically shortened, pushing its excess contents out all at once. Since most of this content came from nonspecialist dealers who had always sold lower down the food chain, it ended up on eBay with low or no reserve. This didn't have much effect at the low end, for the cheaper vintage pens hadn't far to fall, were already in plentiful supply, and had no shortage of buyers, but the market for midrange and high-end pens was another story. It didn't help that many older collectors were slowing down at this point, just as the newer online collectors were still working their way up from lower-end models. It took years for the midrange to recover, while the high end still isn't where it was pre-eBay. The problem largely was (and remains) one of market confidence: at the high end, the number of buyers was never large, dealers included; when combined with the retirement of older collectors and a weak global economy, this sector of the market was easily flooded. All it took was a few examples of a rare pen to hit the market in quick succession (a statistical inevitability) for prices to tumble. Since these transactions were now taking place in full sight of the world, the effect on market perceptions was powerful and lasting, even in cases where no more examples appeared for years afterwards. Not infrequently the reason a selling price was low was because potential buyers failed to spot the item, or because dealers agreed to buy it in partnership rather than compete -- not to mention cases of bid failure, issues with condition or authenticity, etc -- but for those not in the know, it all looked the same.

This is still very much the case. Where trading is thin, the post-eBay market remains more vulnerable than the pre-eBay market to inconsistent sales results and a resulting loss of confidence. There is a pervasive assumption that online auctions are true indicators of value, though they are subject to many of the same inefficiencies as other sales. And where dealers once played a significant role in buffering the impact of short-term fluctuations in supply and demand, the experience of the last fifteen years has left dealers less willing to buy and hold as they once did. Where there is inconsistency, however, there is also opportunity -- but that is a topic for another post.

eBay's shortening of the collecting food chain has had other effects, too. Some items appeal to multiple groups: original counter-top pen displays, for example, are also sought after by advertising collectors; pen-related trade cards, by collectors of ephemera. Before eBay, such items would typically end up sorted and sent on one path or the other. Pen collectors would miss out on many crossover items unless they took the extra trouble to follow specialist auctions, dealers, and shows devoted to advertising, ephemera, etc. This situation was completely transformed by eBay's elimination of the middlemen who had done the sorting. Suddenly, crossover collectibles were easily accessible to every interested collector. The effect on prices varied; in some cases prices rose as the bidder pool expanded, while in others, bidders gained access to a greatly expanded pool of material, and prices dropped.

There is surely much more that could be said, but I'll conclude by observing that while there is much to be missed about the old days, the post-eBay world is in its own way a Golden Age for the collector. There was adventure and opportunity in those hours on the road, the pre-dawn hunts through open-air markets as they opened, and the certainty that treasure could be lying around any corner. Yet how much greater one's reach now, with nearly unfettered access to a worldwide stream of material! The selection and the opportunities have expanded for collectors every bit as much as has access to knowledge for users of the web.

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