by Tyler Cowen
on December 28, 2008 at 8:21 am
in Data Source
On the secondary market, a $100 Brooks Brothers gift card is worth $90 but a $100 Home Depot card is worth $95. Here are further prices (update: the link is now shut down).
For the pointer I thank Robert, a loyal MR reader.
And what does it tell us? Does it tell us about the price value ratio of the products, their ease of use or what?
This tells us the relative valuations of this stuff of the gifter relative to the giftee, obviously. Home Depot products, at their prices, are in wider demand than Brooks Bothers products, at their prices. I would guess that a secondary market for broadly useful gift cards, if they could exist, such as American Express, would be almost at par, as would gift cards for cognac and cigarettes. This is not quite the same thing as saying Hone Depot’s basket is a closer near money than is Brooks Brothers, but maybe that’s true, too.
Speedmaster: you own a $300 1st gen iPhone free and clear, but have to purchase a contract or pay a $175 early termination fee to truly “own” a 2nd gen iPhone.
This gift card phenomenon has been noticed before. As I recall, prices converge toward 100% of the notional value as the breadth of products available at the store (and the likelihood of its future bankruptcy) decreases. This theory predicts that Wal-Mart, Target, and Amazon gift cards should trade for the highest percentage of their notional value relative to all other gift cards.
Having never shopped there, I don’t know, so I ask: how far will $100 get you at Brooks Brothers? Is that likely to be only a fraction of an average shopper’s total purchase there, whereas $100 at Home Depot could buy plenty of useful materials?
Or maybe this says more about the diminishing returns experienced by the kind of people who receive Brooks Brothers gift cards vs those who get Home Depot gift cards.
Does bankruptcy risk figure into this? I won a sales contest at work and the prize was $1500 of gift cards. I could select from a wide variety of retailers. Part of my selection criteria was to avoid retailers that have filed for bankruptcy or have indicated that they’re close.
Great: Stamped money, just when we need it.
A friend of mine in New Zealand is buying iTunes cards at a premium on Ebay (US$50 card for US$51.25 + postage is the best deal so far).
Why? This allows him to get around regional restrictions that the Apple iTunes store imposes on certain content. (I believe he gets around them by having a US based iTunes account, but has to use the gift cards to add credit as they won’t accept an NZ credit card.)
Actually the reason the Home Depot gift card sells at a lower discount is b/c if you buy the Home Depot company sells Home Depot cards with less of a discount than Brooks Brothers. As someone who manages a rewards program can tell you, these merchants simply have different discount schedules.
Brooks Brothers also has higher gross margins so they can therefore afford to discount their gift cards more cheaply.
If the secondary market did not reflect the true primary market economics, arbitraguers would purchase off the second market.
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