Searching for the Moon

Shannon Clark's rambles and conversations on food, geeks, San Francisco and occasionally economics

The value of used – a networked economics perspective

Posted by shannonclark on May 8, 2007

Tonight I will be presenting at bayCHI a presentation titled “A MeshWalk down the street – communications, connections and networked economics”.¬† Please join me there to hear my first presentation of my theory of networked economics, as well as a discussion about the MeshWalk format of events I run.

This post is an example of what networked economics offers as an analytical approach. I welcome comments & discussions, either here via comments, via personal emails, or via discussions in your own blogs (please link back here so I can find them).

The value of used

ArsTechnica recently published a discussion about “pawn shop” laws springing up across the country focusing on regulating the sale of used CDs. These laws have the effect of making selling used CDs to store a very intrusive process, requiring that the seller present multiple forms of id, that the store have expensive bonds, even regulating what forms of payment can be used (only store credit in some states) and how long a store has to wait before selling the CD’s (30 days in some states). Apparently these laws are frequently at the bequest of the Record Industry which believes that because they do not get a cut of used cd sales, they should try to lobby to regulate out of existence such sales.

I would like to offer a counter argument, that a robust used market is a sign of a healthy industry, one which is renewing itself and can prosper. That used markets serve a vital role in the underly ecosystem of the economy.

A related point is that as a society we benefit from vibrant used markets as they keep items which would otherwise become part of our ever growing landfills in useful circulation. Stores selling “used” items provide multiple additional transactions around a given object, enabling items unwanted by the original owners to find new homes and uses.

Let’s look at a variety of “used” markets to start to see what I am arguing.

  • Books
  • Furniture
  • Watches
  • Art
  • Steel & Gold
  • Homes
  • Employment (I’ll explain)

And there are hundreds of others. Most of the economy, in fact, is built on complex webs of interactions, many of which involve the reuse of items and their resale, repackaging or repurposing. Very few parts of the economy are simple paths where all transactions are buyers buying new objects from sellers selling only brand new items. A few parts of the economy – foods (though many food purchases become the ingredients for later transactions – i.e. a restaurant), a few commodities such as gasoline (though some motor oils for example can be partially reused).

Taking my list in order.

Books – when I first learned to read I got most of my books from the library, but as I exhausted the types of books I enjoyed at my local library my next “step” in my love of books was local used bookstores. Like many avid readers a large portion of my book collection (over 1500 books and growing every week) has been purchased at used bookstores over the years. Hundreds of thousands of different new books are printed each year around the globe (in all languages the numbers may be in the millions). Most of these books do not remain in print for more than a few years. Used bookstores provide access to these countless books.

But they serve more roles. Around college campuses used textbooks offer a hedge on the growing cost of textbooks, students who need to save money can purchase used books instead of new (and though primary textbooks in fields do change every few years – both as the field advances and as a response to used textbook sales, many of the related books used in college classes – such as various novels do not change from year to year, the works of Shakespeare for example.). Students who buy new books and decide after the class they have no further need of the books can resell them and recover a portion of their costs.

Vibrant used book sales do more than just offer access to books which are out of print. They also allow for items which were originally priced at a relatively fixed price (the “suggested retail price”) to be sold at the prices individuals are willing to pay. In many cases these are much lower than the original price – but not always. “Rare” books sell for vast multiples of the original price of books (and as a collector, I have many books I’ve gladly paid a premium to own – even one book published in the 1680′s for which I paid 4 figures).

But beyond a discussion about price – used bookstores cultivate readers. They help individuals find more books to read, buy more of them (than if just buying new), and by visceral experience see that many others read and love books (as a kid I recall hours spent poring over the aisles of great local used bookstores, exploring what was available to me, I then spent many summers sorting books for huge used book sales to support the local library). A used book can also be a talisman, a connection across the years from reader to reader. One of my most treasured books is an old and battered copy of Emanuel Lasker’s Manual of Chess which I purchased from a used bookstore in my hometown at about the age of 13. The copy I bought had been stuffed with newspaper clippings of chess games and puzzles by a previous owner – as I read the truly great book, I also caught glimpses of a lifetime’s love of chess by the previous owner.

Someday, I hope to pass down that book to another child (hopefully my own) and inspire another generation’s love of chess.

And I have since bought many copies of the Manual of Chess, both used and occasionally new (though it was first published in the 1920′s, it has occasionally be republished) to give as gifts and to use as a reading copy for myself.

Furniture - while IKEA and similar “flat pack” furniture may be mostly almost disposable furniture, rarely lasting more than a few moves before being broken, most furniture has historically been designed to be long lasting. Collectors still treasure furniture from many centuries ago. More commonly most people’s first (and even second and third) apartments will be furnished with a variety of used furniture – gifts from friends, purchases from Salvation Army stores, and a handful of new items (generally mattresses). This market for used furniture – both the high end collectibles and the low end resale shops – does not mean that furniture makers have gone out of business (indeed there are 1000′s of them still working across the globe). Homes have a relatively fixed set of furniture needs (though tv/entertainment stands and desks have had to evolve as our devices have changed size and screens have grown larger) by being able to meet these with a variety of used and new options, individuals can pick and choose where to invest their money (and time in finding that “perfect” couch).

Watches – modern, inexpensive watches can and do tell nearly perfect time for often <$10. (Woot.com just yesterday sold two watches for $20 which synch themselves to atomic clocks in the US to tell perfect time, losing only 1 second in a million years). However watches new and old are sold for vastly more than $10. Sold not as functional items purely but as decorative status symbols. Watch collecting has been a passionate hobby for many for centuries. Though fewer people today are trained watchmakers, a friend of mine just a few years ago bought and sold sufficient used watches and watch parts to raise the downpayment on his condo.

Art – The art “market” is dominated almost entirely by the used art market. A few “major” artists command significant prices for their new pieces in their own lifetimes. But often these prices and their ability to command them is set by the prices others have been willing to pay for their older pieces on the “used” market. Art is also a very complex market. Artists find creative ways to share their art with people – selling limited edition prints, licensing art images in a variety of ways, selling works to museums who them exhibit them (and charge for access). But without the used marketplace for art as a culture we would be limited only that which a handful of living artists are creating. We would all be the poorer for it (poorer culturally but also economically).

Steel & Gold -  Most steel used today is not newly created from raw materials. Rather, most steel is now recycled from previous uses of steel. Melted down and remilled. Without a used market in steel we would be exhausting our world Рand as buildings and cars are no longer usable we would have to leave them cluttering our cities and planet. My sister is a jeweler. She buys gold to use to make her jewelery, for the most part, however she is not buying newly mined gold (though certainly there is a lot of that) rather she is more likely to buy recycled gold, melted down from old jewelery or from gold dust and leavings from jewelers making other items.

And now for two of the big ones, then my networked economics discussion 

Homes - Yes, many people across the country buy new homes, or tear down old ones and build new ones. But most homes bought and sold in the US (and indeed in most of the world) are used. The business of selling used homes drives a huge portion of the economy of the US. The purchase of these homes are typically financed by mortgages (and 1000′s of companies help sell those mortgages), the mortgages in turn are packaged and sold to investors across the globe. Each month millions of home owners make payments on those mortgages, sending a portion of their earnings off to the financial institutions who put up funds for a used home in exchange for a promise of monthly payments for years to come (usually 30 years). This vast web of financial commitments and relationships ties millions of people and businesses together for decades. Defining the future and thus setting the value of core elements of our economy to a great extent (i.e to a large degree what a dollar is “worth”).

But without a market for used homes we would be in an illogical position. Homes almost always outlast any individual who owns them through changes in that individual’s needs (children, marriage, new job, death) individuals will move. In the US we move relatively a lot. But worldwide as one generation grows older they very often set up their own households, or leave one household to join another (via marriage often). Thus homes will need to be passed on to a new individual (or group) at some point – in most cases many different times. This does not mean that new homes will not be built, or that older homes may be changed even destroyed to make room for new ones, but the world finds a balance – and that balance requires a market in old homes, in “used” homes.

Employment – As a global community we do not buy and sell people, slavery – after much struggles – is mostly ended. However my point here is that we do make major markets in “used” people – we just called “used” in this case “experience”. Few people today start one job and never change what they do in their lifetime. Even historically for those people who did stay with one firm or organization for an entire career would change roles over time at that firm – usually gaining responsibility. These “used” markets do not mean that people are not entering the marketplace “fresh” from college or other training, however without the majority of opportunities being for “used” people we would not have an economy.

Okay so this last point is a bit of a stretch – but what then is the “networked economics” perspective on all of this – on the value of “used” to the economy and to specific markets, such as CDs?

Vibrant used markets create the overall market for the class of goods or services. Without used markets then the market is defined as a single path – from raw goods to finished product to purchasers to some final end (i.e. trash heap). The network of this market is thus very limited – only so many suppliers of raw goods supplying a small (typically) set of finished product creators who in turn offer a limited choice to buyers. The buyers then having only one option when their use of the product comes to an end – trashing it. So their participation in the market is limited by how much of their resources they are willing to send off for something which at some point they then plan on destroying without any further gain. They may be able to use the product while they own it in some product manner, but have to factor in the final destruction of the good into their decisions about purchasing it.

In contrast in most markets where there is a vibrant used marketplace the network is much more complex. Raw goods still enter and are transformed by one set of parties. But individual buyers have many more options, they can by “new” or they can buy “used”, likewise when they have an item they can change roles from a buyer to a seller which allows them to enter the network in many more ways than just as conduit to a trash heap. This back and forth, shifting of roles and relationships makes for vastly more interactions across the network. It also makes it easier for the buyers to devote more of their current resources to this market as they are not allocating resources once but can both allocate a portion of new resources (i.e. wages/income from businesses) as well as a portion of the resources from their last times into the market – as sellers not as buyers.

This vibrancy and fluidity of the market also lowers the risks of entry – makes it easier to gain the habit of participation, to go from an occasional participant in the marketplace to an active, frequent one. Buying used books often exposes a reader to a new author, when that author publishes a new book many of those readers buy that book new instead of waiting for it to be available used.

In the case of music specifically used CD sales (and record sales) offer one though no longer the only, way for people to enter the market in easier ways. They also offer opportunities to obtain otherwise unavailable items (since most new stores only stock a very very small portion of the full set of CDs in print, let alone the majority of music which is no longer available new). And for many they offer a hedge, as your tastes change you have an alternative to the trash bin – one which as the ArsTechnica article notes might also generate some cash for students.

But more than the money changing hands the existence of used markets, the capability to interact, the time spent looking at (and learning about collecting) the past means that the market is not limited to just the current output of the industry – but can and will encompass a wider history.

And this participation will make it easier for people to allocate more of their resources to music – and for current artists (and their labels) this could mean (if people like it) buying new albums. It also is a portion off the bigger entertainment industry – gaining interest in a type of music – in no small part by buying the history of that genre will lead to interest in the current path of that genre – including attending concerts.

But killing off the ability to sell what we buy (either physical CD’s or perhaps more complexly digital purchases) means that whatever investments we as buyers make into the marketplace are one-time transfers – removing resources from us and sending them off to a handful of parties. We do not then have the (perhaps) opportunity to enter the market as sellers (unless we create our own original works).

One of my first “careers” was as a dealer in collectible trading cards. I bought, sold, and traded these cards for over a year. Investing about $5000 of my own cash over that year, plus 100′s of hours, and taking out of that year over $40,000, plus 1000′s more in potential value in inventory. While I played a small role in this industry, the company which made the cards I was buying and selling would eventually grow to be sold for nearly $1B and still to this day (over a decade later) sells billions of new cards each year. They prospered even as 1000′s of individuals such as myself invested money and time in their products to create small businesses in the “used” market for those goods. We served to get individual items into the hands of people who valued them, valued our service in doing that greater than what we charged for it. This vibrant marketplace where buyers could also be sellers meant that I was by no means alone in investing my time & resources in participating in the marketplace. Reinvesting some of my proceeds, as well as investing resources garnered elsewhere.

Music is a complex industry – and just as in the book world my personal feelings about buying used items do change when the creators are still alive (assuming I like them and want to support them). However it is exactly because I was able to enter the market – such as books – in a variety of ways, building up my habits over time – and from time to time selling off a portion of my books to reinvest into different ones – that I am now in a position to decide when to buy new books and when to buy used (and I still have the interest in participating in the market at all).

For music, most of what I buy these days are CDs I buy directly from artists – often at a show when I see and enjoy them, occasionally online direct from them. I do also buy some used CDs – usually from artists I have not encountered before and/or who I know off historically. Online I buy some music, again often from sources where I’m comfortable in what will be going to the artists directly (I have bought a few tracks from iTunes but not many).

But part of my lack of participation is the dearth of used sources such as a great store I grew up with, Val’s Halla where I spent many hours as a kid exploring their used CD bins (less time in their vast record collections). Passionate stores such as Val’s are few and far between today -stores that create the market for the industry.

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One Response to “The value of used – a networked economics perspective”

  1. [...] The value of used a networked economics perspective [...]

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