Episode 629: Buy Low, Sell Prime

Enlarge this image toggle caption Jacob Goldstein/NPR Jacob Goldstein/NPR

Note: This episode originally ran in 2015.

Sam Cohen's business works like this: He walks into a big retail store and buys a bunch of stuff. Then he sells it on Amazon for more. It's straightforward and surprisingly lucrative.

This is a multimillion-dollar business for Sam — and for lots of other people who do the same thing. It's called retail arbitrage.

How is this even a job, much less an industry? It defies something called the law of one price. That economic principle says that the same item should sell for pretty much the same amount of money everywhere it's available. If, say, a Nerf football costs $15 at Toys "R" Us, it should cost the same amount on Amazon. Because, if it's cheaper in one of those places, everyone will just buy where it's cheap. If it can sell for more on Amazon, why doesn't Toys "R" Us sell it for more there themselves?

Planet Money #629: Buy Low, Sell Prime Buy Low, Sell Prime Listen · 15:00 15:00

In a lot of cases, the law of one price still holds. But Sam Cohen is an expert at finding the sweet spot: Products that he can buy in bulk at a physical store, and then resell online for a profit. He knows, for example, that a board game like Monopoly is a "commodity item" that he probably won't be able to make money on. It's available everywhere, and it'll probably have pretty much the same price no matter where you look. All those sellers are competing with each other, driving the price down. But a specialty box of Monopoly — say, a Game of Thrones-themed box — he could potentially sell for a profit.

Today on the show: We meet the modern middleman and we find out how he makes money doing something that should be economically impossible.

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