6 ms·

It's a non-classical example of arbitrage.

fennecfoxen 11y ago
And both this and more-classical arbitrage is just someone enforcing the Law of One Price (by profiting from the price difference). https://en.wikipedia.org/wiki/Law_of_one_price https://en.wikipedia.org/wiki/Law_of_one_price
forgetsusername 11y ago
Methinks you miss the OP's point. It isn't the name of the actual mechanism for the financial gain. It's a title for the idea of doing something wasteful, perhaps even net negative for society, for a very minor personal surplus. In this example, the guy wasted gas, created traffic, occupied employees time, put wear and tear on vehicles and roads and spent two days driving in circles...all for $2000. People are free to do what they want, and the "exploitation" is fair game, but it seems odd to me too.
- dublinben 11y ago
  I think you're being unnecessarily negative. This gentleman took a three day vacation, participated in his hobby, and earned $2000 for the pleasure.
  - wpietri 11y ago
    No, forgetsusername has me exactly right. My point is that he didn't earn anything. He was given something worth €3000 after performing assorted actions. But earning is about an exchange of value. He did nothing valuable for Avis; he instead wasted their time and resources. He only earned this money to the extent that pickpockets earn what they take out of wallets, or what con artists take from their victims. Sure, they work hard, and sure, they get money from it. That's not earning, that's taking.
    - deleted 11y ago
      [deleted]
    - saurik 11y ago
      So, I can sort of appreciate where you are coming from: if someone doesn't buy salt and instead keeps going to the fast food restaurant down the street grabbing handfuls of salt packets, they are being a pretty awful leech, as the reason salt packets are free and just available like that is because we trust people to not abuse the process like that. The alternative turns into what we have to do with packets of BBQ sauce, carefully limiting how many people are allowed for various food purchases, and then charging them $0.25 for extra. I can also see an argument that this person has discovered a security exploit that they are taking advantage of, akin to someone stealing wifi from an airplane hotspot. Whether because the person figured out an SQL injection attack in the website or because they figure out they can tunnel TCP over DNS, the more ethical thing to do is probably to report the bug to the company instead of abusing it to steal resources. This, however, is a different situation: AVIS seems to seriously be mis-pricing their core product, and in a way that is kind of sketchy to begin with. Here we have a company that is doing something I can't imagine many of us actually like: they have built a ludicrous time wasting procedure by which they abuse human psychology to encourage specific buying patterns, and they did it in a way that is well-known to be dumb. The way they have done this is by manipulating prices of products and providing an alternative currency with incentives for specific behaviors. If you want to see threads worth of people hating on this, search Hacker News for SkipLagged (the site that was sued for finding open jaw flight segments being priced incorrectly by airlines). Let's say I go into a Walmart, and they have decided to offer a $40 off discount on jeans, but they sell a pair of one of their brands jeans for $30, and the register treats the $10 as a credit. I tell the person at the counter about this, and they tell me "yeah, it's dumb; I just work here". And then I go to the checkout with a massive pile of jeans, and the people at the register at first give me a funny look, but then a wave of realization hits them and they start laughing. And then every day I come in and they have a basket of jeans sitting at the counter waiting for me. And they just don't care. In fact, the way you should model this is "Walmart seriously believes the price of jeans to be -$10", not "we are stealing money from Walmart". Sure, we think they are daft for valuing jeans at -$10, but we even told the people there and no one cared. They helped us do this. If you want a real world example, Sony sells Playstations at a loss. Some people would buy Playstations, install Linux on them, and then use them as nodes in Beowulf clusters, or as cheap fileservers for their house. Sony does this as an exploit against our buying behavior, making us more willing to put down the initial investment for the game console so we are more likely to buy games later. They then put a ton of DRM on their hardware, require companies who want to distribute software for their platform to pay them a royalty fee, and extract their rent from game developers. I see why they do this, but I hate it. It means that their entire business model is built in a way that encourages them to do things like sue people who jailbreak their consoles, as their profit is now tied to their ability to get paid for people developing and distributing software. If you ever wonder why Apple is so benign against jailbreakers while Sony sues them to death, it is because Apple has a business model where they make all their money on hardware (the App Store pretty much breaks even), making them only care about what you do with your device after you pay for it due to a combination of a control fetish, a strong aversion to bad PR, and a feeling of responsibility to protect their beginner userbase. But like, even barring these indirect effects, Sony has incorrectly priced something they have put on the market. They haven't done anything fundamentally different from someone willing to sell stock at a price higher than the market rate. When people here talk about arbitrage, it is because that is exactly what has happened: someone is pricing their product in a way that has encouraged someone to figure out how to extract value from it. Maybe you also hate high frequency traders, but it isn't quite fair to equate them to pick pockets and con artists. If we found out the people selling the stock were doing it at a loss, it makes them dumb, not the high-frequency traders evil. So while I can't imagine spending time finding these pricing mistakes, much less making all these phone calls and doing all this traveling to take advantage of them, the idea that this guy did is something I am totally fine with: "more power to him", I say. The usual worst case scenario that could come out of this is the "that's why we can't have good things" result of "no more stupidly complex promotional programs" (a similar situation to "no more free BBQ sauce packets"), but again: that would be a good thing, so I am having a difficult time feeling like this was due to someone doing something bad for humanity. (For my part, I run a marketplace, and I have a strict policy against illogical pricing promotions: I stare at every single discount a developer wants to have me apply to sales made via my platform, and I verify they don't have pricing paradoxes that would lead customers to have to waste their lives trying to figure out how to get the software they want at the cheapest possible price. And I really do consider doing anything else, as is all too typical in the travel industry, kind of scummy :/.)
- llamataboot 11y ago
  Not sure why people are downvoting this comment, even if they disagree with your assessment of the FT poster's behavior, since you were pointing out what the OP was looking for. I just refer to it as the perilous incentive structure of late capitalism.
- uxp 11y ago
  He also had fun, or at least his writeup sounded like he enjoyed his adventure. Right now I'm remodeling my home. It's laborious, costly, consumes resources that could be spent on building housing for those less fortunate, occupies the time of employees at the home stores I frequent when I ask questions, but I enjoy it. One has a hard time calling it "exploitation", but aren't I exploiting resources that are available to me for personal gain (albeit in a very literal definition)?
  - wpietri 11y ago
    What you do with the resources you control is an interesting question. But the one I'm pointing at here is how you get those resources. If you read about scam artists from the late 1800s and early 1900s, there was a lot of innovation where people filled their pockets in ways that were perfectly legal but negative sum for the society as a whole. (Joseph "Yellow Kid" Weil's biography is a fun read.) This led to a whole new series of laws, including those relating to wire fraud. How those innovative scammers spent their ill-gotten gains is a separate question from asking whether the way they filled their pockets was right.
6502nerdface 11y ago
Arbitrage in general is not a "net negative." It's a net positive, which is why arbitrageurs earn a profit; they are compensated for a service that generates value for someone else. To quote from Larry Harris' textbook [1]: "Arbitrageurs ensure that prices do not vary much across markets. When prices diverge, they buy in cheaper markets and sell in more expensive markets. The effect of their trading is to connect sellers in cheaper markets to buyers in more expensive markets." Arbitrageurs effectively "port" liquidity from one market to another. This is the value they provide to others. Thus I'm not sure I would describe this as arbitrage; or at least it's not the term the GP is looking for. [1] http://www.amazon.com/Trading-Exchanges-Market-Microstructure-Practitioners/dp/0195144708/ http://www.amazon.com/Trading-Exchanges-Market-Microstructur...

And both this and more-classical arbitrage is just someone enforcing the Law of One Price (by profiting from the price difference). https://en.wikipedia.org/wiki/Law_of_one_price https://en.wikipedia.org/wiki/Law_of_one_price

forgetsusername 11y ago

Methinks you miss the OP's point. It isn't the name of the actual mechanism for the financial gain. It's a title for the idea of doing something wasteful, perhaps even net negative for society, for a very minor personal surplus. In this example, the guy wasted gas, created traffic, occupied employees time, put wear and tear on vehicles and roads and spent two days driving in circles...all for $2000. People are free to do what they want, and the "exploitation" is fair game, but it seems odd to me too.

dublinben 11y ago
I think you're being unnecessarily negative. This gentleman took a three day vacation, participated in his hobby, and earned $2000 for the pleasure.
- wpietri 11y ago
  No, forgetsusername has me exactly right. My point is that he didn't earn anything. He was given something worth €3000 after performing assorted actions. But earning is about an exchange of value. He did nothing valuable for Avis; he instead wasted their time and resources. He only earned this money to the extent that pickpockets earn what they take out of wallets, or what con artists take from their victims. Sure, they work hard, and sure, they get money from it. That's not earning, that's taking.
  - deleted 11y ago
    [deleted]
  - saurik 11y ago
    So, I can sort of appreciate where you are coming from: if someone doesn't buy salt and instead keeps going to the fast food restaurant down the street grabbing handfuls of salt packets, they are being a pretty awful leech, as the reason salt packets are free and just available like that is because we trust people to not abuse the process like that. The alternative turns into what we have to do with packets of BBQ sauce, carefully limiting how many people are allowed for various food purchases, and then charging them $0.25 for extra. I can also see an argument that this person has discovered a security exploit that they are taking advantage of, akin to someone stealing wifi from an airplane hotspot. Whether because the person figured out an SQL injection attack in the website or because they figure out they can tunnel TCP over DNS, the more ethical thing to do is probably to report the bug to the company instead of abusing it to steal resources. This, however, is a different situation: AVIS seems to seriously be mis-pricing their core product, and in a way that is kind of sketchy to begin with. Here we have a company that is doing something I can't imagine many of us actually like: they have built a ludicrous time wasting procedure by which they abuse human psychology to encourage specific buying patterns, and they did it in a way that is well-known to be dumb. The way they have done this is by manipulating prices of products and providing an alternative currency with incentives for specific behaviors. If you want to see threads worth of people hating on this, search Hacker News for SkipLagged (the site that was sued for finding open jaw flight segments being priced incorrectly by airlines). Let's say I go into a Walmart, and they have decided to offer a $40 off discount on jeans, but they sell a pair of one of their brands jeans for $30, and the register treats the $10 as a credit. I tell the person at the counter about this, and they tell me "yeah, it's dumb; I just work here". And then I go to the checkout with a massive pile of jeans, and the people at the register at first give me a funny look, but then a wave of realization hits them and they start laughing. And then every day I come in and they have a basket of jeans sitting at the counter waiting for me. And they just don't care. In fact, the way you should model this is "Walmart seriously believes the price of jeans to be -$10", not "we are stealing money from Walmart". Sure, we think they are daft for valuing jeans at -$10, but we even told the people there and no one cared. They helped us do this. If you want a real world example, Sony sells Playstations at a loss. Some people would buy Playstations, install Linux on them, and then use them as nodes in Beowulf clusters, or as cheap fileservers for their house. Sony does this as an exploit against our buying behavior, making us more willing to put down the initial investment for the game console so we are more likely to buy games later. They then put a ton of DRM on their hardware, require companies who want to distribute software for their platform to pay them a royalty fee, and extract their rent from game developers. I see why they do this, but I hate it. It means that their entire business model is built in a way that encourages them to do things like sue people who jailbreak their consoles, as their profit is now tied to their ability to get paid for people developing and distributing software. If you ever wonder why Apple is so benign against jailbreakers while Sony sues them to death, it is because Apple has a business model where they make all their money on hardware (the App Store pretty much breaks even), making them only care about what you do with your device after you pay for it due to a combination of a control fetish, a strong aversion to bad PR, and a feeling of responsibility to protect their beginner userbase. But like, even barring these indirect effects, Sony has incorrectly priced something they have put on the market. They haven't done anything fundamentally different from someone willing to sell stock at a price higher than the market rate. When people here talk about arbitrage, it is because that is exactly what has happened: someone is pricing their product in a way that has encouraged someone to figure out how to extract value from it. Maybe you also hate high frequency traders, but it isn't quite fair to equate them to pick pockets and con artists. If we found out the people selling the stock were doing it at a loss, it makes them dumb, not the high-frequency traders evil. So while I can't imagine spending time finding these pricing mistakes, much less making all these phone calls and doing all this traveling to take advantage of them, the idea that this guy did is something I am totally fine with: "more power to him", I say. The usual worst case scenario that could come out of this is the "that's why we can't have good things" result of "no more stupidly complex promotional programs" (a similar situation to "no more free BBQ sauce packets"), but again: that would be a good thing, so I am having a difficult time feeling like this was due to someone doing something bad for humanity. (For my part, I run a marketplace, and I have a strict policy against illogical pricing promotions: I stare at every single discount a developer wants to have me apply to sales made via my platform, and I verify they don't have pricing paradoxes that would lead customers to have to waste their lives trying to figure out how to get the software they want at the cheapest possible price. And I really do consider doing anything else, as is all too typical in the travel industry, kind of scummy :/.)
llamataboot 11y ago
Not sure why people are downvoting this comment, even if they disagree with your assessment of the FT poster's behavior, since you were pointing out what the OP was looking for. I just refer to it as the perilous incentive structure of late capitalism.
uxp 11y ago
He also had fun, or at least his writeup sounded like he enjoyed his adventure. Right now I'm remodeling my home. It's laborious, costly, consumes resources that could be spent on building housing for those less fortunate, occupies the time of employees at the home stores I frequent when I ask questions, but I enjoy it. One has a hard time calling it "exploitation", but aren't I exploiting resources that are available to me for personal gain (albeit in a very literal definition)?
- wpietri 11y ago
  What you do with the resources you control is an interesting question. But the one I'm pointing at here is how you get those resources. If you read about scam artists from the late 1800s and early 1900s, there was a lot of innovation where people filled their pockets in ways that were perfectly legal but negative sum for the society as a whole. (Joseph "Yellow Kid" Weil's biography is a fun read.) This led to a whole new series of laws, including those relating to wire fraud. How those innovative scammers spent their ill-gotten gains is a separate question from asking whether the way they filled their pockets was right.

6502nerdface 11y ago

Arbitrage in general is not a "net negative." It's a net positive, which is why arbitrageurs earn a profit; they are compensated for a service that generates value for someone else. To quote from Larry Harris' textbook [1]: "Arbitrageurs ensure that prices do not vary much across markets. When prices diverge, they buy in cheaper markets and sell in more expensive markets. The effect of their trading is to connect sellers in cheaper markets to buyers in more expensive markets." Arbitrageurs effectively "port" liquidity from one market to another. This is the value they provide to others. Thus I'm not sure I would describe this as arbitrage; or at least it's not the term the GP is looking for. [1] http://www.amazon.com/Trading-Exchanges-Market-Microstructure-Practitioners/dp/0195144708/ http://www.amazon.com/Trading-Exchanges-Market-Microstructur...