Arbitrage

The Web's Most Maniacal Bargain Hunters

by: Greg Bensinger
Apr 13, 2015
Click here to view the full article on WSJ.com

TOPICS: Microeconomics

SUMMARY: Retailers fret about "showrooming," where shoppers scan bar codes in stores and seek better deals online. But now there is a twist.

CLASSROOM APPLICATION: The article offers a great example of arbitrage in action, deemed "reverse showrooming." Armed with price-checking apps, individuals purchase low-priced items in stores. They then resell the items on Amazon, at a profit. "Industry insiders call the practice retail arbitrage. It's more art than science, because prices are often lower online. Tricks of the trade include scoping bargain racks, shopping on senior discount day, buying unusual sizes and anticipating high demand. Software developers offer price-checking applications that help calculate potential profit, after shipping costs and online commissions."

QUESTIONS: 
1. (Introductory) Define arbitrage. Is the practice of purchasing low-priced items in stores and then reselling them at higher prices online an example of arbitrage?

2. (Introductory) Are people who purchase low-priced items in stores and then resell them at higher prices on Amazon taking advantage of Amazon shoppers?

3. (Advanced) Does Amazon benefit from the practice of retail arbitrage?

4. (Advanced) Based on the anecdotal evidence in the article, how does the online competition for a product affect the prices set by retail arbitragers?

Reviewed By: James Dearden, Lehigh University