Saturday, July 11, 2009

Priced to Move

If the events of the recent past have taught us anything at all, it's that many of the economic models and theories we relied on are hardly gospel. In fact, rather than be located in the Bible they might more appropriately reside in "The Devil's Dictionary." After all, it was Ambrose Bierce's classic work from 1911 that describes "commerce" as "A kind of transaction in which A plunders from B the goods of C, and for compensation B picks the pocket of D of money belonging to E." Substitute "subprime mortgage" for "commerce" and you'd be hard pressed to come up with a better definition.

Still, even if any truly analytical comprehension of economics is buried way in your past (or if you're like me, and it never really existed at all), you probably still understand a few of the basic principles at work. Things get sold to make a profit. Generic items cost less than brand names. The further something has to travel the more it will likely cost. None of it rocket science, to be sure, but all helps make the world of business go 'round.

But every so often you come across something which makes little or no sense in light of the laws you know. And so I need a little help in understanding how I can buy a piece of current technology which works perfectly well, is delivered directly to my door from China, and sets me back the princely sum of $1.13.

Let's start with another guiding principle of economics: if it's any kind of gadget and it can help me, I will buy it. Just as some covet the latest in fashion or cars, I yearn for the latest gizmo that will streamline some aspect of my life. That being said, if there is no substantial difference in quality or performance, I see no reason to buy the shiny, name-brand, top-of-the-line model when I can find a no-name clone that does the same thing for substantially less. This leads us to another law: I am thrifty (Or as one of my kids said, "Dad, you raised us to be cheap.").

Which leads to my current puzzlement. I recently discovered that I could sync my smartphone to my computer using the wireless technology known as Bluetooth. Needing the correct hardware and software combination, I kept my eyes open for the appropriate adapter and picked one up via the web. The memory stick-sized dongle worked as advertised, and made me a happy camper.

However, since I use it at least once a day, I wanted a spare to throw in my bag. In poking around online, I stumbled upon the perfect backup. It was much smaller than my current one, barely bigger than your thumbnail. The technical specs were exactly what I was looking for. It came with free shipping from Hong Kong. And the cost was the previously reported $1.13. Indeed, it was delivered as promised and works perfectly. In fact, it is so small and non-descript, one associate christened it a "fortune dongle."

When these devices first came out, they were closer to $50; when I bought my first I paid about $30. Now a quick scan of major merchants finds name brand versions from $20, and no-name clones from $8. On top of that you have to add shipping and taxes, so it's hard to get below $10 all in.

So what I'm trying to figure out is how anyone makes any money on my transaction. The device I received is certainly no brand name, so there are no costs for advertising. There's no customer support, so that doesn't factor in. But there's a listing on eBay, and while the commission there is cheap, it costs something. As for mailing, it costs me 44 cents to send a birthday card to my mom 100 miles away; it's got to cost at least that to send a package from China. And the device itself is actually a pretty sophisticated piece of technology manufactured to a reasonably high standard... the manufacturer had to charge the distributor something. So when you add it up, $1.13 delivered is beyond a loss leader. It may just be the steal of the century.

To be sure, a small profit of even a few pennies can add up with volume transactions. Every sale on eBay can drive up a seller's rating, giving him better visibility for higher priced goods. And low cost items can attract traffic and lead to more sales. But $1.13? Gray market or not, it doesn't make a lot of sense. Or to quote an old article in Wired magazine, information wants to be free, but this is ridiculous.


Marc Wollin of Bedford loves it when he finds a bargain. His column appears regularly in The Record-Review and The Scarsdale Inquirer.

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