The curious case of second hand markets

When I was growing up in a Lancashire mill town in the 1960s and 70s, every Friday evening we went to the fish and chip shop to buy our meal. The particular delicacy was an upside-down pea mixture: mushy peas on top of the chips, which were then soaked through and green. But this post isn’t about British culinary delicacies, but rather about what the transaction included. Because it was the practice to take your plates and dishes to the shop, where the food was placed on them and wrapped in newspaper. You were buying fish, chips, peas and some paper. This is a contrast to today’s practice of buying in addition a polystyrene tray, and a contrast to buying a meal in a restaurant, or beer in a pub, where you are buying the food and renting the plate or glass.

These reflections about the nature of the property being exchanged in a market transaction came about because I read an article in the Financial Times about a plan for a second hand market for digital goods in Europe, to be launched by ReDigi, which is running one in the US already. It sells for 60 cents songs already bought online for 99 cents. Needless to say, the company has been taken to court in the US) by Capitol Records), for breaching ‘intellectual property’ rights.This is entirely in line with the instinct of the “content owning” industry – witness the way games companies have tried to restrict the second hand market in physical games by adding one-time only codes, and requiring purchasers of pre-owned games to also buy a new code to unlock the game.

The outcome of the ReDigi case will be fascinating: the question is whether something that is ‘property’ in the initial transaction ceases to be property for the purposes of a secondary transaction. Ultimately, it might be the case that digital purchases of books and music become more explicitly a rental model, as the capacity and claimed willingness of vendors such as Amazon to delete purchased e-books or enforce restrictive DRM already hints. Digital goods are a special case because there is no degradation of the second-hand compared to the new item. There are none of the information asymmetry ‘market for lemons’ problems arising from the unknown quality of a physical good such as a car (although not a physical book or garment, which can be inspected in the charity store).

Browsing around about this subject, I’m surprised to find how little research on second hand markets is available. The few journal articles I found – mostly dating back to the 1990s or early 2000s – suggest that second hand markets can increase rather than decrease the size of new goods markets, because consumers will upgrade more often if they can recoup some of their earlier purchase from selling them second hand. What’s more, it would be incorrect to assume anyway that used goods cannibalise new sales, because at least some consumers would never buy them at the higher, new prices. (Cory Doctorow picked up this point in the context of e-books in a 2005 piece.) And of course, we apply different standards, and different concepts of property, in different markets. There is the digital/physical divide, but also the divide between, for example, books, first edition or antiquarian books, and art – rarity determines not only whether second hand cheaper or more expensive, but also our cultural attitudes to buying in the used-goods market.

In the real world, second hand is huge. It’s huge in developed markets – see, for example, this Guardian article about the post-Christmas surge for charity shops – especially during a recession. It’s bigger still in developing country markets, where clothes and other goods such as mobile phones from the richer countries are sold on a large scale in the markets. This may be one of the all-too-frequent examples of a subject not being studied by economists because there’s no readily-available online data set on the OECD or World Bank websites. The one book I managed to find on contemporary society on Amazon is a 2003 anthropological study of Second Hand Cultures. (There is also Modernity and Second Hand Trade: European Consumption Cultures and Practices 1700-1900.)

If anybody knows of relevant books in any social science discipline, I’d love to know.  This subject is a dog that hasn’t barked, but maybe that will change.

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6 thoughts on “The curious case of second hand markets

  1. I think it’s a fascinating subject. I’m surprised there’s been so little in the way of formal study of it. Considering that we are full throttle in the digital age, and people are being actively throttled by copy restrictions, yup… interesting that so few have put pen to paper on it. One thing that I thought sounded reasonable, which I heard somewhere along the line, was the fact that when you buy something like a car, the original car goes with you, and so the value of the materials and labor now rest in your hands as your property. However, in the digital world, the copy leaves the original intact. So when you buy a music file what’s being transferred is a copy, not the original object. It’s in interesting distinction. One that I suspect has implications I’m only vaguely aware of. Anyway, it will be fascinating to see where society goes with this in the future. The fact is, when I buy something, I expect to own it. And I expect to be able to sell it. And when someone comes over to me and says “You can’t sell that.” I’m going to be confused. Why not? I bought it. So why can’t I sell it then? What if I don’t like it, but someone else does, and he wants to buy it from me and I want to sell it to him? Oh, not allowed eh? Somehow, that’s kind of ruining the whole “Digital Age Utopia” thing for me. Instead it seems to be turning into the Digital Tyranny. And I’m not at all a fan of that.

    • I omitted to mention the strand of work on intellectual property in the digital age, which scholars such as James Boyle and Lawrence Lessig have written about from the perspective of the commons, or public space. However, the extension to implications for second hand trading seems absent in the literature. It’s all the more of a gap when you consider that there is one category of digital good actively traded in a second hand market, namely financial instruments. If shares and bonds, why not books and songs?

      • I can’t find it now, but Lessig has written about second hand digital files before – it’s been a hot topic for geeks long before the MP3 age, because of computer software resale.

  2. Diane, there is a nice story in this David Lowery interview that you might like:
    http://www.theawl.com/2012/06/david-lowery-chat

    Lowery hears his son making a PayPal transaction in the room next door – and asks what it’s all about. What he finds is: “a friend is hosting a server, and they’re selling the admin privileges of this game to other kids, so they have higher status and privileges in the game. So there you go: creating virtual property.”

    The idea that IP really isn’t “real” property goes back to Adorno, at least; it isn’t a new idea. In recent years it has been advanced by academics and theoreticians who show a serious misunderstanding (perhaps it’s innocent, perhaps it’s wilful) of what’s in front of them. What we’re talking about is a bundle of rights, that are of varying length but all temporary, given to brain work. These rights have a “property-like” aspect, and are recognised as such, very strongly, in international law and treaty. The academics here are mistaking an adjective for a noun.

    Just what this “brainwork” is doesn’t really matter. For example, a TV format can’t even be reduced to bits – but nevertheless has considerable value, there’s a right there that can be traded. (eg, The Voice!). Authors have only a first-sale right, but they have other rights – serialisation, adaptation, lending rights.

    I cite the Lowery story because it’s a great example of people creating something property-ish – creating rights – so they can trade them. This will take place regardless of what academics wish to call it all, or the latest fashionable theory.

    The Academy’s problem in getting to grips with this in recent years is an example of where people really, really want to be part of the conversation – but (apart from economists, obviously!) generally have very little to offer. I recall the late database pioneer Jim Gray was once reflecting on his career and complained that his biggest obstacles came from academia – academics couldn’t pin a theory onto his work. Given how slow some creative industries have been in introducing supply side reforms, I can see the temptation for opportunists to step into the vacuum. Unfortunately, the solutions the Academy proposes create a needless intergenerational conflict. I am not convinced that we should destroy potential markets, and require future generations should forgo economic opportunities, just so we can ease the burden on people today who are quite capable of paying. This strikes me as very selfish.

    All this is much more of problem for the academics, than it is people building things (businesses, technology), or the rest of us. They’ve had the opportunity to step up to the plate, and produce something more convincing than markets based on property rights, but they’ve spurned it. In any case, we now have China and developing nations signed up to the emphatically property-ish WIPO and Berne processes, so the prospects of a new conceptual theory of property superseding what we have today are probably now zero.

    But then I wonder if new concepts of property really needed? Take Freehold land contracts, for example. Leasing a right to a property isn’t a new “concept of property”, but a new application of the rights framework we already have for land. If the law is strong and simple and clear, people will innovate like this – just as Lowery’s son’s friend did. Trade will happen.

    The great thing about IP is that it is so wonderfully resistant to ideological fanatics, or theories that are self-delusional (“rights aren’t rights, property isn’t property”). Economists have a valuable role to play here as they’ve been looking at markets for some time.