The Irrational Gap in Price Between New and Used

Have you ever bought something used? Do you have specific things that you would only buy new? New sells in America. Rich Americans have a lot more perceived money than they do time. And rich individuals will pay extensively for ease, comfort, consistency and reliability. Often, price is surprisingly one of the least important aspects of individuals’ buying decisions. And this observation can be leveraged. Used goods are easier than ever to evaluate, obtain and enjoy. With modern retailers like amazon, ebay and craigslist, buying used can be equally as convenient as buying new. The traditional inhibitors of buying used have been reduced for everyone.

MH900104756It is rational to assume there would be a premium for new products. In business, assets are typically depreciated based on a formula that lowers their value over time. Sometimes we assume a consistent dropping of value and other times drop the value faster as items are newer. But for consumers, products have a dramatic and irrational drop in price as soon as they are purchased. For the savvy individuals, this provides a window of opportunity between the time when an objects’ price has been devalued but the useful life is still strong.

Everyone is familiar with how fast vehicles drop in value but the example I often give is buying a used smartphone. A phone used for thirty seconds will drop in value 30%.  If you are going from $600 (i.e. Iphone) to $450 in thirty seconds that is pretty impressive. I know many people don’t consider used clothing but think for a minute about the fact that clothing loses 90% of its value when you take off the tag. Is it really worth ten percent of its value because it is no longer new? Or how about books. A used book, even in perfect condition, is often worth less than half its new counterpart. Can you tell the difference between a new and like-new book?

Why in America
In almost every other country and especially second and third world countries there is a natural flow of used goods. People rarely throw useful items away and things get recycled and reused as they move down price points. There are still middle men but the margins are typically tight and individuals are often comfortable with buying and selling. In America, and arguably a few other counties in the western world, new commands an extreme premium. People will pay hundreds for cellophane packaging. The marketing strategy perpetuates the notion that you get what you pay for and buying anything other than new is taking a huge risk. The irony is that technology is making products better, longer lasting and higher performing. Technology also makes it much easier to asses, learn and evaluate the usefulness of goods and even fix things that are partially broken.

An even stranger gap develops in upper middle class America when you have the price of used goods that effectively goes to zero when they are no longer of use. Wealthly poeple often have so much stuff they will dontate all their extra junk for free simply so they don’t have it laying around. Or, it will sit comfortably in some storage closet for years wilting out its useful life. These markets can be treasure troves for used goods if you actually find someone who will take the time to sell, give or get rid of something.

Taking Advantage
If you grow up in America, from an early age you are programed that new is best. New is expected. New is what you give to other people. New is what you get for Christmas. And this can be nice. It can be nice because you will often be surrounded by people who pay a premium for new. And you can be there to pick up wonderfully useful objects for a fraction of their original price. I think I’ve come to the point where I actually prefer to get high quality used objects. I think this feeling is developed both on an economic stance and also a slightly environmental stance. If I am able to get useful life out of something that is used, it  means that it is not withering away. I like the idea of taking something that would otherwise be wasted and getting enjoyment out of it. I like the idea that new plasticy things don’t have to be made if I can use someone else’s older one.

Understanding the useful life of objects can be extremely helpful. Think about the things you buy often. Which things do you own or use that are often still quite useful when you get rid of them? Cars, Furniture, Baby Stuff, Art, Household Items, DVDs, Clothes, Technology? The great news for me is that modern electronics, if maintained, often work until they are functionally obsolete.

Maximize Buying and Selling
The best deals come from individuals. If you take out the middlemen you get better prices but you loose a little convenience. Amazon makes it the easiest to buy used (For example: you can check the link here for Dave Ramsey’s Book: Notice the little line that says ‘used’ and notice the 75% off). On every listing there is almost always a used tab at the bottom. Ebay now sells tons of used and new items. Just read the listings and there are plenty of deals to be had. Craigslist is the least expensive but the additional step in the transaction makes it a bit less convenient. The irony here is that technology makes bringing buyers and sellers together easier than it ever has been. The middlemen are electronic and their fees continue to be reduced by competition. There are tons of efficient, free options that require almost no learning curve. Or, just ask around. You might be surprised who you know that has what you are looking for, unused in a closet in their house. You can do a favor to them by helping them reduce clutter while you get the benefit of nice things at attractive prices.

As a final warning, be careful when you perfect the art of buying high quality used goods. You’ll find yourself with access to tons of high quality objects and have lots of extra money in your pocket while simultaneously reducing waste. 

 

2 thoughts on “The Irrational Gap in Price Between New and Used

  1. That’s a funny warning at the end! I love buying used and I think we “used buyers” have a distinct advantage in our economy. Because everyone is buying new, we have a surplus of great, gently used products to buy from with relatively few buyers to compete with. And because of the technology available, it’s a bit of a golden age for buying used. Selfishly, I want that to continue…on a larger scale, I know it would be better if more people purchased used.

  2. That is a great point. It works well for me because I can enjoy the benefits of other’s used goods. I’d make the trade if more people were willing to buy used (and also sell their old things).