The Wire and eBay: Economics, Scarcity, and Digital Product

All those who know me will surely not be surprised that I have managed to incorporate Stringer Bell into my personal analysis of eBay’s recent decision to stop selling eBooks in auction. For those who are unfamiliar with the depth of my obsessive dissection of both the HBO series and economic models for e-product, well, welcome to wonderland.

An early episode of The Wire has one of show’s most notorious drug dealers, Stringer Bell, attending a college economics lecture to find an effective way of dealing with a supply/demand problem. His issue? A limited supply of poor quality heroin and an almost infinite demand from his consumer base of drug addicts. String needs a way to preserve his feedback score with his customers in the addict<>drug loop even while hawking a product inferior to the offerings of other dealers.

Cut to the feedback loops that eBay has now decided are compromised by digital product auctions. Economic models familiar to capitalists like Stringer don’t work here. eBooks and MP3s are lower demand (no slam on eBooksit’s just that it’s hard to compete with smack addiction) and (almost) infinite supply.

eBay’s position that vendor quality can’t be accurately assessed with the digital model is fair…unscrupulous vendors won’t be weeded out as quickly or as easily and the feedback system is compromised. But is that the real reason the auction method doesn’t work? If Stringer had a product that could be replicated for free at no cost to quality, isn’t he just a lucky capitalist?

Putting aside the copyright issue (and, to be sure, it’s not a small issue), the big problem for eBay has nothing to do with feedback loops or legal issues. It’s an issue that goes right to the root of Adam Smith’s economics. Capitalism depends on a balance of supply and demand and we just don’t know how to deal with infinite supply. Not Stringer, not Adam and definitely not eBay. Taking it out of the equation only works for a whileand if I’ve learned one thing from The Wire, it’s that you can’t stop the tide once it turns.

Wire geeks everywhere know that no one knows that better than Stringer Bell.