Thoughts on Behaviour in Second-Hand Markets:
Facebook, Vinted and Crap Art in Chazzer shops
I don’t like shopping. I never have. In general, most stuff I see is too expensive. Maybe this is why I’m not bothered by targeted advertising. I smirk at the idea they will sell me anything through those browser windows, the filthy capitalist trolls. In economic terms I’m highly price elastic, meaning changes in price really affect my demand. But these capitalist overlords are not fools, for them the solution to a stingy bastard like me is price discrimination, offering certain things for lower prices, how can it be done? Enter the second-hand market. I am a sucker for second-hand. Both the charity shop and internet second-hand marketplace has taken hold and these places suck money out of people like me like never before. Facebook Marketplace is the behemoth for offloading unwanted household items while offering bargain hunters the thrill of discovery. So here I look at second-hand markets through an economic lens, to understand why some items thrive in resale while others languish in digital purgatory.
Firstly. second-hand markets are not just resales; Houses resale, stocks resale; investments shift ownership. When I’m talking about second-hand, in general, I refer to consumption goods, things we use up when we are consuming them. Not immediately perishable but also not long-term investments. You know the like, we buy stuff, we use stuff, but then our preferences evolve, technology advances, or a shinier version tempts us into an upgrade. These goods haven’t reached the end of their functional life, just the end of their life with us. And so, we sell.
Economist and Nobel laureate George Akerlof disentangles the fruity subject of second-hand cars in his famous paper, Market for Lemons. He explained why their value drops by 30% when driven from the dealer. His analysis was that Asymmetric information in certain markets leads one party to have more information than the other. Buyers can’t easily assess a used car’s reliability, but sellers, having driven it, know its issues, flaws, and hidden strengths. This imbalance leads to market-wide scepticism: if someone is selling the car they’ve just bought, this signals that it is likely to have problems. Buyers, fearing they’re purchasing a “lemon,” offer lower prices, and sellers must accept these depressed valuations, even if their vehicle is fine.
This same logic applies to second-hand goods with hard-to-measure quality. Electronics, for instance, suffer from steep discounts because buyers fear hidden defects. Printers, T.Vs and monitors, despite often functioning perfectly fine for many years beyond their first resale, are resold for a fraction of their original price due to information asymmetry. Sometimes this effect can be dampened by a third party, such as a phone and laptop refurb shop, but still, the price is drastically lower for these items
Now we’ve found out why second-hand prices can be so low, the next question is why anyone bothers to sell in these markets? Vinted, the online marketplace for second-hand fashion, raises an interesting question: why do people go through the hassle of photographing, listing, packaging, and shipping items for a couple of quid? The answer lies in the cost of ownership or what an economist calls storage costs. Storing unused clothes isn’t free, it takes up space, clutters wardrobes, and generates decision fatigue. The mental energy spent choosing between old and new outfits, let’s call it the anti-Feng Shui effect, eventually outweighs the item’s residual value. At a certain point, ownership becomes a net burden. Selling an item doesn’t just bring in a few pounds, it eliminates the psychological cost of keeping it.
Storage costs help explain some other strange economic activity in second-hand markets; why does a Primark top, originally priced at £8, get resold in a charity shop for £12, while a £1,000 sofa struggles to fetch even £50 on Facebook Marketplace? If you are like me, you shudder when finding a nice Primark top in a charity shop that you know was cheaper new. Then I take a dramatic gasp at the free sofas and pianos on FB marketplace, often thinking, surely there is an arbitrage (opportunity for making money) by buying up free sofas and shifting them on? The way I see it, three potential factors drive this discrepancy: Sofas accumulate wear, stains, and the imprint of years of use, they are notoriously difficult to clean which hardly makes them an easy sell. Clothes, on the other hand, can be washed and restored to near-original condition in many circumstances. Shifting a sofa requires logistical planning, a van, and possibly a few strong friends whereas a t-shirt is an iron and a fold job. Lastly, When deciding to get rid of a sofa, people typically hold onto it until they have found a suitable replacement. With a delivery date looming, they’re desperate to offload the existing furniture, often for free, before they’re stuck playing furniture Tetris in their living room.
This still doesn’t explain why the Primark shirt can go for more second time round? Maybe preferences for fast fashion dictate that some dispose of clothes that are essentially new. Charity shops know this and add a premium to newish-looking clothes; for the warm glow of contributing to a worthy cause, over and above contributing to the fast-fashion dystopian-landfill-squishing high street warlord of Primark
Second-hand markets allow for price discrimination where the same product gets sold at different price points depending on the consumer. Some buyers prioritise convenience and prestige, happily paying full price, while others scour resale platforms for discounts. As mentioned, Second-hand prices don’t depreciate at a constant rate. A brand-new car loses value immediately upon purchase, but its depreciation slows as it ages. This is why a 15-year-old van often holds its price better than a 2-year-old one. Savvy second-hand buyers look for items that are not only cheaper but also retain value well over time. This seems to flip the paradigm to ask another question: Why do people still buy new? Who are these price-inelastic individuals?
Despite the compelling logic behind second-hand purchases, many consumers still opt for brand-new items. I can think of several possible factors that explain this phenomenon: Many goods are not just functional, but also serve as status symbols. A new car, designer handbag, or latest smartphone signals wealth and social standing. This is worthy of the premium paid to illustrate an item is first-hand. Another possibility is that risk-averse customers, who hate throwing away money on a potential deal, may prefer new products that come with warranties and consumer protections that reduce the perceived risk. If you want a Macbook pro that won't capitulate at the next update, buy from a shop at triple the price they argue? Meh. Finally, there are search costs. Finding a second-hand item takes effort, scouring marketplaces, websites and thrift shops. Buying new is simple, walk into a store, select the item, and walk out. Hence unlike me, those who value convenience, security, and social signalling are more likely to buy new, while those prioritising savings and sustainability embrace second-hand markets.
Now let’s talk about crap art. Walk into any charity shop and amidst the bargains, you’ll find an abundance of badly drawn landscapes and portraits from Picasso’s nightmares. Who donates these unloved masterpieces? Behavioural economists may point to the IKEA effect, the notion that people tend to overvalue things they’ve created. That framed watercolour from a six-week evening class? The owner, unable to bin it outright, donates it, hoping someone else will appreciate its unique charm. Charity shops, in turn, become unintentional galleries of misplaced artistic confidence. A similar bias emerges in home renovations. People pour time, money, and effort into DIY projects, convinced their blood, sweat, and tears have added value. But tastes vary wildly. A seller may see a custom-built bar in the living room as a value-adding feature; a buyer sees demolition costs. The result? A graveyard of perfectly functional, but unsellable, home improvements. As the skips outside of new home sales indicate.
In short, we tend to overvalue both the things we own and the things we’ve created, but we also tire of them as the novelty of ownership fades. When these opposing forces reach equilibrium in the second-hand economy, resale markets flourish. Hurrah. More second-hand markets, please, more hidden gems, fewer dodgy David Hockney impersonations.