eBay vs. Hand-Me-Downs
By Ocean on Jan 24, 2008 in Our Theory
Most younger siblings feel at a disadvantage throughout their whole life. If you ask them why, chances are they will reply: “hand-me-downs” (along with many, many other grievances). Unfortunately, it is not just the younger siblings that have had to endure this injustice; younger cousins, family friends, and even our own sons and daughters have all had to deal with it in one form or another. So what’s behind this rampant and intolerable behavior? Well, nobody knows for sure, but we are going to explore the possibility that, with all the advances in modern technology and increased market accessibility, we might be able to do away with these atrocities once and for all: specifically through the use of eBay.
This is the hypothesis: instead of holding onto that game or pair of jeans in hopes that the younger sibling will eventually grow old enough to use it, we will sell it on eBay, invest the profits in a high yield savings account, and take the money out later to buy something new for the next child. We will test two different scenarios: one will involve an old game and another a pair of jeans. We will test the game because these are assumed to be obsolete by the time the younger child comes along, and therefore (presumably) there will be more need to substitute it. We will test a pair of jeans because, assuming they remain in fashion and maintain the same price throughout time, they will have different dynamics when treated as hand-me-downs.
Siblings that are 3 years apart:
Game Boy Advance vs. Game Boy DS
In 2001, a Nintendo Game Boy Advance (GBA) sold for $89.99. The “hand-me-down option” here would have been to hold on to the unit for three years or until the younger sibling was old enough to play with it, rather than buying the new Nintendo DS (DS) which was released 3 years later in 2004. The alternative option would have been to sell the GBA off after a year of use, and then buy the DS for the younger sibling.
It did not take us long to discover that, in 2002 a used GBA would have probably sold for about 50% of its original value, or $45. If these $45 are invested in a 5% savings account over three years (compounded monthly) you would only have $52.27; not nearly enough for the DS.
Winner: Hand-me-downs.
*Correction: Winner: eBay (see comments below)
Jeans vs. Jeans
A pair of jeans in 2001 could be bought for $25 (in current prices, since we’re assuming no change). If, one year later, your kid grows out of them, you could sell the pair on eBay for $7.50. Once again, $7.50 invested over 3 years at 5% interest makes only $8.71.
Winner: Hand-me-downs, Hands down.
*Correction: Winner: eBay (see comments below)
Relatives one generation apart:
Eventually, after running more scenarios, it becomes fairly obvious that more time is needed in order to make this investment strategy become worthwhile Not surprisingly, that time can best be attained by simply waiting one generation (there are few options other than waiting). This would mean that when your child grows tired of the GBA, you can sell it on eBay for $45 and then invest the earnings until the child has had a child of their own who would want the future equivalent of the device. Let’s assume that this would take place over the course of 25 years. Placing $45 in a savings account for 25 years with a rate of 5% compounded monthly would give you a future value of $156.66, hopefully enough (or nearly) for the latest and greatest handheld console. Likewise, if you were to sell your old jeans and use the invested proceeds for your kid’s kid 25 years later, the $7.50 you earned would be worth $26.11, just enough to buy your kid a pair of new jeans.
Winners: eBay and eBay
In conclusion, it seems as if the eBay approach is economically rational in all situations, although the younger person does not receive the same amount of utility as the older one unless they are separated by roughly one generation . Of course, a hand-me-down savings account might not be worth keeping track of for 25 years, but I also wouldn’t keep those old pair of jeans around thinking the future generation will appreciate the sentimental value.
I would like to take this opportunity to advertise my completely unrelated item on eBay, available only until January 30th: http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&ssPageName=STRK:MESEX:IT&item=120214611450&_trksid=p3984.cSELL.m315.lVI
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I read the post on hand-me downs vs e-bay. It’s a really interesting premise. However, as always, I will make a few comments.
You are kind of comparing apples and oranges. The two game devices really have two different values not because of dollars but because of what each one gives you for your buck. After all, a Commodore 64 back in the day at the crazy price it was sold in today’s dollars and today’s computers are not comparable based on their inflation adjusted prices. So you might want to put both games’ values in inflation dollars per processing power to find their real values.
Also, you might want to look at the discount rate (depreciation rate) for more than just the first year. After one year of use, you say that there is a 50% discount rate for the game’s value. What would be the discount value after two more years? (I will assume a 7% discount rate for my calculations below.) This is the true value that you pass to the 2nd kid.
When you look at it from this way, then selling the game after one year of use, investing, and then giving the proceeds to the 2nd kid makes a lot more sense; the proceeds (value) will be more than the dollar value of the first game device after three years at a 7% discount rate.
$89.99 for DS game
1st yr: $44.95
2nd yr: $41.81
3rd yr: $38.89
Value after investing one year’s use, $52.27
So rather than give the 2nd kid $38.89, you can give $52.27 to the 2nd kid. To be equitable to each kid, as I mentioned, you should look at the real values and see if the 2nd kid is getting the same processing power/dollar value as the first kid. I bet that if you look at this way and use the 52.27 to purchase the 2nd device, you will be ahead of the game–no pun intended.
Anyway, I think this really explains why it is better to be the first kid and not the 2nd kid and why 2nd kid is always unhappy with hand-me downs. If you don’t follow your suggestion, the 1st kid gets 90 dollars of value while the 2nd gets a measly 38 bucks. I wonder if this pattern holds true with parenting. It seems that parents are much more focused on the 1st kid’s education and upbringing than on the 2nd.
So how do you get out of this terrible deal if you are the 2nd kid? Some game theory sheds some light on the best decision. Your best choice as the 2nd kid is to make the hand-me downs completely worthless. That is, convince the 1st kid to buy something ridiculous that the parents won’t pass down, or just get really fat so you cannot fit in the hand–me down clothes.
In my case, I was raised with three older sisters. As a guy, I never got any hand-me downs from my sisters. (Except for the occasional dress for wearing around the house. But we won’t talk about that.)
Billybob | Jan 29, 2008 | Reply
Thank you, Billybob, for your comments. I’ll address them one by one:
First of all, I intentionally did not use processing power in my calculation because, although a commodore 64 is primitive compared to any PC these days, we (or whoever was lucky enough to use one) enjoyed them in a disproportionate manner. So we got the same amount of utility from less processing power which, Moore’s law notwithstanding, can be quite relative when it comes to kids and games.
And I see what you mean about Apples and Oranges. Thanks for pointing it out. If the hand-me-down choice is $38.89, while the eBay choice is $52.27, then eBay should be the winner. I was trying to assume an equitable deal between the siblings, so that the second born would be able to attain the same amount of utility as the first, which turned out to be impossible in this scenario regardless.
The same could then be said for the Jeans, where the hand-me-down value is $7.50 and the eBay value is $8.71 (I will assume their price equals their inherent value at all times).
Unfortunately, what is clear in both scenarios is that the main loser is the younger sibling. In terms of how they can avoid this predicament, I think you made the best choice, by being born a male with three older sisters. Of course, it doesn’t compare with my choice of being the first-born, but you’re a close second.
Ocean | Jan 30, 2008 | Reply