Scalps that buy graphics cards and game consoles just to sell them at hugely inflated prices are a problem. And co-founder of iD Software John Carmack has an idea on how to stop it, as he put it Twitter last night. What if manufacturers only auction their own stock directly to consumers?
“We would be better off with a transparent auction system directly from manufacturers and a more efficient market,” he wrote.
I’m not sure there are enough words to express how awful an idea this is. Not only does it fly in the face of business ethics and enter some murky legal territory at the federal level, but it also accommodates the regular supply chain and can potentially make it harder than it is now for people to get an RTX 3080 or a PS5 .
In a previous life, I worked for a small intermediary company in the semiconductor industry for several years, so let me break down the production process. As an example, let’s use things called toroidal cores, which are thick rings with magnetic properties that are usually made of iron (but they may contain other metal elements). If you were to open your PC’s power supply unit, you would find one in there.
A raw material company sells the iron powder to the company that makes the cores. That company then uses their equipment to squeeze the powder into the core models, then they grind it, and then they can either sell it directly to the company that makes the PSUs, or they can sell them to distributors who then sell them to the companies that make the power supply units. The companies that make the PSUs can then either sell them directly to companies such as NZXT that offer PC construction services, or sell them to retailers such as Micro Center, which supplies entire PC components to consumers who want to build their own PCs.
It’s the supply chain everyone keeps talking about in the middle of the stream chip shortage. Computers and consoles need many components to make them work, all the way down to raw materials and small parts like toroidal cores. If there is a shortage at some point along the way, the supply becomes scarce, prices go up, and consumers have to wait a long time before they can get these products at a normal price.
When scalpers come in and buy up all the GPUs and consoles, they create a false scarcity by keeping the end products out of the normal market. Suggesting that Nvidia, AMD, Sony and Microsoft keep their end devices out of the normal market and force users to go directly to them to buy graphics cards, it would not create false scarcity in itself, but to have these companies auction their usual stock to the highest bidder would – not to mention that it would annoy many consumers.
Cutting out distributors would also be a terrible idea for Nvidia, AMD, Sony and Microsoft, which rely on resellers or production / distribution agreements with companies such as Asus and MSI to sell their products. Not only would these companies have to take on the entire distribution task themselves, but combined with an auction process that Carmack says “should net better for consumers in the end” if all manufacturers participated, which also opens up all these companies for potential Sherman Act violation (legislation that prevents anti-competitive behavior and pricing).
When it comes to auctions and bidding specifically, Sherman law prohibits anything that can be seen as bidding or price behavior in violation of a competitive market. Signs of this include price increases that are not in line with cost increases at any point in the production process I have described above, and bid prices that fall when a new or rare bidder places a bid.
Cut out the distributors completely and move to this direct manufacturer authe process can be interpreted as increasing prices that do not correspond to increased natural price increases in the supply chain – not to mention int will likely affect companies like Micro Center that sell entire PC component parts to consumers.
Carmack’s thread naturally elicited some comments. Some pointed out that scalpers could still decide to try to win a GPU or console at auction. If the companies somehow acknowledged that the bidder was a scalper and adjusted the bid price to be more reasonable, it could put them in a situation where they are being investigated by the DOJ for cooperation.
The process proposed by Carmack would cause more problems than it would solve. The issue of scalping can not and will not be resolved at the producer level. It must be resolved by federal law. But until the law exists, the only way we can stop scalpers is not to buy from scalpers – even if you have money to spend on a $ 1000 RTX 3070. Just be patient and wait for more stocks to hit the market. Scalpers will only continue to scalp as long as they think there is a demand. If manufacturers auction off their own stock, it only keeps the products out of the hands of ordinary consumers, because only the affluent can afford them. It is no different than what scalpers do.