Cash For Clunkers, Phone Edition
The best trade-in programs are so uneconomical that they can only be offered by governments and tech behemoths.
Google recently blessed customers with such a trade-in program. When purchasing a Pixel 6a, customers could receive a $300 credit for unbroken 3As and a $295 credit for 3As with a cracked screen. This was shockingly above market value -- mint versions of the 3a were selling for $80.
In addition to the fantastic trade-in values, Google also included a free set of pixel buds ($100 retail) for Pixel 6a preorders.
When a deal is this subsidized, people are going to try and unlock value from it (other than just buying a phone!). Here's one way people approached it (simplified, without taxes, etc.):
1. Buy $50 cracked Pixel 3a
2. Buy $440 pixel 6a and earbuds for $145 after Pixel 3a trade-in
3. Sell $440 Pixel 6a and $100 Pixel Bud Earbuds
4. Profit: $440 Pixel 6a + $100 Pixel Buds - $145 6a purchase cost - $50 3a cost = $345 Profit
In reality, things were not that simple!
Ebay Reaction
As an unapologetic markets geek, I started watching ebay listings closely to see how this promo would impact 3a prices.
In the first day after the announcement, there wasn’t much price movement, the ebay market had not caught up. Pixel 3As were still selling under $50.
Then, suddenly, someone bought every single Pixel 3a that was listed under $100. The price floor doubled almost instantaneously.
Now, 3As with cracked screens were selling for double what mint phones had been selling for earlier in the day.
Many of the sellers who sold at $50 earlier in the day felt ripped off and tried to cancel the sales.
Price discovery on eBay is slow, but it does happen eventually!
The Selling Part
Many people ended up buying the 6a with the intent to resell them. This led to a ton of supply dumped onto the secondary markets.
Because of the massive supply, factory sealed pixels were selling around $50 dollars below their retail price.
The number of people selling the pixel earbuds was even higher. Most people purchasing 6As already had wireless earbuds, so even people who weren’t reselling the 6As were looking to offload the earbuds .
This led to people struggling to sell their earbuds, even at a 50%+ discount to retail. Still not too bad for something most people received for free.
Conclusion
I’m not sure why Google decided to pay top-dollar for broken phones, but it did provide a great Natural Experiment to see how online marketplaces react to drastic changes in valuation.
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