Grand Cards: The Value of Cards (Part III)

Sunday, January 18, 2009

The Value of Cards (Part III)

I lied. This post went up today and not yesterday. My apologies.

Part III: When Prices Rise Over Time

Parts I and II are available here and here

When information is scarce and prices haven’t stabilized, it is most common for prices to decline, as discussed extensively in Part II. In the majority of cases, waiting will yield lower prices, unless a stable “market price” has already been set, in which case prices will stay the same. It is important to note that this effect does not necessarily hold true for all cards. Rather, only cards that are capable of commanding high prices will follow this logic. In low price ranges, the psychological barrier of spending an extra dollar or two is not large enough to prevent people from spending a little more than their perceived value just to win. With high prices, some people will try to get the card cheaply, some will spend moderately and some will eventually spend a lot to win the card. Ultimately, the price will settle at a more moderate range where the bulk of collectors would value it. This stabilization point is the point where the two lines on our graph cross, known as the equilibrium (labeled true market value).  Here's our graph from the previous post to illustrate:
From Grand Cards

However, there is another scenario that can arise in which waiting will lead to substantially higher costs. I will call this the Andrew Miller Paradox. In 2007, Topps released rookie variations for a handful of cards in their Series 1 set. Andrew Miller, Delmon Young and Troy Tulowitzki, among others. The Andrew Miller card showed him posed, instead of delivering a pitch like his normal card. It became known as #15b. Here are the two side by side with the variation on the right.
Now, this card came out right when I got back into collecting. I saw it on eBay when Topps series 1 was released and the two cards, bundled together sold for around $10. A month or so later, I saw another one on eBay with a starting price of around $40. Later there was another one at about $40 with a few days to go. Other sightings from members of the Detroit Sports Collectors forum saw prices get as high as $75 and $175! So what happened here?

Well, asymmetric information reared its ugly head again. When this card was first released, people knew that it was short printed, but they didn’t know how short. Prices were inflated above normal card value. However, it quickly became known that these prices were SUPER short printed. The forums came alive with rumors of 1:3400 Wal Mart Packs, Less than 1 per case, etc. All of a sudden this card, which people had apprehensively bid on initially, was known to be extremely rare. With all the information out in the open, the price exploded. Topps set collectors, perhaps the largest subset of collectors, clamored to get it, leaving Tigers and Miller collectors in the dust, although still willing to pony up for the card. In this case, the price may have stabilized at a persistently high level, or it may have been high up until the point that these rare cards disappeared from the market. Either way, the price of this card never did go down and remains an impossible card to find to this day. Graphically the series of events looks like this:
From Grand Cards

In the first graph we see a “true market value” based on the information available to consumers. However, once more information is revealed, and the scarcity of the card known, the graph changes. The upward sloping graph (supply curve) shifts to the left, reflecting a lower supply than originally thought. This creates a new “true market value” at a much higher level, given the fewer number of cards in the market.

Contrast the Miller case with a more famous short print from the same release, the Derek Jeter w/Bush and Mantle card. With collectors still jittery over the Alex Gordon and Alay Soler releases in 2006 Topps (Beckett wrote a good article that provided much needed information on the scarcity of the card—clearly with intelligent economists on staff), and with the Jeter card receiving tremendous publicity, prices started out sky-high. However, as the scarcity of the card became better known, prices fell—as you would expect in a traditional scenario. Graphically:
From Grand Cards

In this scenario, consumers thought that the card had a lower supply than it actually did. As you may remember, the market was initially confused about whether this was a gimmick or a joke that wasn’t caught. This confusion bred high initial prices. Once it became clear that it was a gimmick, and that the card was more common than originally thought, the supply curve shifted to the right, lowering the price. (You could also argue that demand shifted left, lowering prices further, once the card was revealed as a gimmick, turning some people off. It is important to note that while actual suppy didn’t change, the perceived supply in the market, based on the information available did change, causing the price fluctuation. While this isn’t technically asymmetric information, which assumes that either buyers or sellers exploit the other by having information that only they know, this general disinformation has the same effect for our purposes).

So how do the cases of price inflation discussed here and deflation, from the previous post, help us determine a final market price? The key is information. Looking back at the original post from Dinged Corners, we see the Babe Ruth “hair” card. The seller has no idea how much that card is worth. Neither do you. Nobody does. Why? Because only one of those cards exists, and there are no comparable substitutes out there. This is not a printing plate “1 of 1” where there are other printing plates from the same player and other players that can help set a market price (for printing plates), this has a hair from Babe freaking Ruth. Now, if this were just an autograph card, we could set a price on it based on the going rate for Babe Ruth signature cards or, failing that, Babe Ruth signatures on other items. The issue is the hair. Perhaps if cloning were up and running then someone could evaluate how much a modern day Babe Ruth would earn as a professional baseball player, subtract the cost of the cloning procedure and the cost of raising him over the course of 18 years until he could get drafted out of high school and reach a final number for having Babe Ruth as a son. Otherwise, what is the point of the hair? Because it’s cool? Last I checked, you can’t put a price on cool (I should know—Heyo!) So, instead we are left with a card that is so potentially valuable that it has no value because it can’t sell. The only way to find the price of that card is to put it up for auction and see where it ends up. Meanwhile, Jeter and Matsuzaka cards are selling within narrow-ish ranges, although some buyers are getting better prices than others. Clearly, there is an established market for these players that has helped set a base price for their autographed cards, allowing for fluctuations based on set, condition, autograph quality etc. Price stabilization occurs when all of the information about the card is known. It doesn’t need to be perfect (e.g. the card can be relatively common or relatively rare) but there needs to be some heuristic that buyers can follow. If there isn’t, we get crazy Armando Galarraga and Andrew Milller situations until more information is discovered.

So that, my friends, is how the eBay market works to price cards. I hope that made sense for everyone. But wouldn’t it be interesting to know what the companies thought the cards would be worth? Wouldn’t it be easier if there was an SRP for cards like this, especially the really rare ones?

I hypothesize that there actually is. Through a combination of pack prices and the odds released by manufacturers, we can actually deduce the manufacturer’s SRP for almost EVERY CARD in a release! In the next post, I will attempt to prove that hypothesis and use it in conjunction with our newfound knowledge of the dynamics of eBay to determine how we can purchase on eBay more effectively and, how we, as bloggers, can save the world.

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