5 Things We Learned About The Not-So-Mysterious Business Of E-Commerce Arbitrage

We’ve written about the practice of arbitrage in e-commerce in the past. Arbitrage is when you take advantage of different prices for the same items in different places, and make money by buying it from one place and reselling it in another. E-commerce has created a new variation on this business: people who receive orders from one site, order the items for their customers on another, and then ship directly, serving as a middleman.

Jason Feifer over at Entrepreneur magazine looked at this scheme in some detail, and wondered how to (maybe) prevent or stop it. He introduces readers to some of the sellers, and also to a cat toy inventor who has declared war on resellers of his products.

• A typical transaction works like this: a company sends their item to the Amazon warehouse. An order comes in and Amazon fulfills it, shipping it to the name and address on the order. This isn’t who placed the Amazon order, though. The actual purchaser bought the same item on eBay, and the middleman turned around and ordered it as a gift from Amazon. The seller never knows… unless they happen to have a distinctive item and they control the supply of it.

The e-commerce platforms vary, but the process is the same: a customer buys from one site, and the item is shipped to them from antoher.

• Everyone makes a little bit of money on this transaction, including both selling platforms, the arbitrage seller, and the original seller, but it’s understandable why the original seller feels like a sucker, shipping directly to a customer who paid a few extra bucks to someone else.
• Arbitrage isn’t hard to learn, and is a job that people seem to fall into. Some are disabled or have trouble finding traditional work and running a traditional business for other reasons. Specialized software helps with both ends of the transaction.
• Marketing work-at-home schemes to vulnerable people might seem like a shady business, but the companies that market this software don’t really care. One software seller wrapped himself in the mantle of helping people earn a (somewhat) honest living. None of the programs guarantees income, but they’re still marketed like get-rich-quick schemes.
• There are ways to sabotage the process, which are satisfying but ultimately don’t solve anything. One seller of a different product bought his own item from a reseller on eBay, then turned around and hiked the price tenfold. The eBay seller had a choice: fulfill the order, or risk bad feedback, too much of which puts a seller’s account at risk.

Why It’s Nearly Impossible To Stop This Amazon and eBay Scheme [Entrepreneur]