Grand Cards: The Value of Cards: Part I-Traditional Markets

Tuesday, January 13, 2009

The Value of Cards: Part I-Traditional Markets

A series of interesting eBay experiences over the last few weeks have prompted me to write about something that is close to all of our hearts. Card Pricing. Of course, the wonderful Dinged Corners beat me to the punch. Taking their cue, I thought that I would post the first in a series on card pricing and eBay. I will try to keep the posts relatively straightforward, and I will try to use some theoretical analysis to back up my claims. IF MY ASSUMPTIONS OR METHODS ARE WRONG, PLEASE CORRECT ME. I’m a little rusty on my statistics and such, so if I’m incorrect, please let me know and I’ll make a correction. Onward…

Cards, intrinsically, have no value. We have all heard that argument before. They are cardboard pictures and ink. In a sense, that is true. In another, more accurate sense, cards do have some value—the value that we give to them through the same market forces that drive everything else in the country: Supply and Demand.

Example. Keep in mind that all of the numbers in this example are fictitious:

Topps manufactures cards that it intends to sell for $1.99 per pack (p). At that price, they expect to sell 500,000 packs of cards (q). This is graphically displayed in a typical supply and demand curve:

Now, say Topps decides that they are going to increase their prices to $2.99 per pack. Assuming nothing has changed, they will only sell 300,000 packs (losing substantial market share to Upper Deck). At this price, only people who value a pack of Topps cards at $2.99 or higher will buy.
Similarly, if they lowered their price to $.99 per pack, they would increase sales to 650,000 packs. At this price, people who weren’t willing to buy a pack at $1.99 will enter the market.
Let’s go back to the first scenario, known as the equilibrium case. You can view the downward sloping line (Demand Curve) as a series of 500,000 points, one for each pack of cards sold. The first (highest) point is sold to somebody who values a pack of Topps cards VERY HIGHLY. For fun, let’s call that person JayBee. The last (lowest) point is indicative of somebody who sees almost no value in Topps cards. Let’s call that person Chris. At the intersection, is the person who feels as though they will get exactly what they expect out of a Topps pack, nothing more, nothing less. Let’s call him Joe.

If there were only one pack available for sale, and no price had been set, JayBee would be willing to pay $10 for it. However, packs only cost $1.99. That means that JayBee is getting $8.01 of additional benefit without having to pay for it. That is his consumer surplus. Meanwhile, at the equilibrium point, Joe is paying $1.99 for something that he values at $1.99—his consumer surplus is zero.
So, why is this important? Aren’t we supposed to be talking about card valuation here? Yes. Yes we are. In the world of packs (and most other consumer goods), the “market” relies on Producers like Topps setting the price of their goods. This is all done with a complex pricing mechanism that calculates costs and profits etc. This is your Suggested Retail Price (SRP).

As we know all too well, there are no SRPs for individual cards, everything is market driven. However, the basic theory of consumer surplus still holds--and that is what gives you the impression of getting a "good deal" or the sense that a card is overpriced. In years past, there was no “global market” for baseball cards. You were relatively restricted to the card shops and card shows in your area. With limited information for consumers, Beckett valuations filled the role of market data. I will not begin to enter into the heated Beckett fray that has erupted recently, I’m just giving context as to why Beckett was so important for so long. However, a market emerged in the last decade that provides real time feedback on pricing and valuation. That market, as you well know, is eBay.

In my next post, I will discuss how eBay works as a market and how its structure affects you, the collector.

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