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The Backlash Against Marketplace Arbitrage

Simon Eskow eCommerce articles Leave a Comment

Online marketplaces gave rise to a new side-gig in America. Using Amazon, in particular, anyone with a little hustle could make extra cash on the side doing retail arbitrage. (Some even turned that model into a thriving multi-million dollar business.) They buy products on sale at a nearby WalMart and resell on Amazon. In a way, it was a simple market solution to equalizing supply and demand, and a lot of brands tolerated it because, hey, a sale is a sale. But, as some sellers began buying from one marketplace and selling on another, opposition increased.

Arbitrage and Brand Erosion

Companies have opposed retail arbitrage over the years, particularly luxury brands. In the US, at least, lawsuits by manufacturers trying to block arbitragers from selling their products have gone nowhere, but in other markets, things are starting to change. With arbitragers buying from one marketplace and selling on another, we’re now seeing eBay (specifically) taking action to curb the practice.

So What’s the Big Deal?

Brands that rely on marketplace channels to sell and grow have particular reason to oppose arbitrage. A good example of this is the story of Ripple Rug, as explored in this interesting feature story. Generally, it goes like this: a company sells its product on Amazon. Meanwhile, an arbitrager markets that same product on eBay, but at a higher price. The arbitrager makes the sale, then places the order with the real company. The customer, in turn, is surprised to see the product in an Amazon box, and seeing the lower cost, believes the company has ripped them off. For Ripple Rug, that resulted in hundred of returns, lost customers and brand erosion.

eBay Strikes Back

Brands don’t like arbitrage, and eBay doesn’t like it either. The company has started to ban third-party fulfillment in Australia. It’s also taken steps against software companies that help arbitragers lift content from a brand’s marketplace channel to use on another channel. And it’s making some progress in that light.

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