The Downside Of Marketplace Arbitrage

eCommerce opens up online businesses to new selling methods that will help them reach untapped markets.

Unlike bricks-and-mortar shops that only rely on walk-in customers for their revenue, online shops generate sales in multiple ways whether on their website or on marketplaces.

Some Internet sellers source their products from product-label suppliers, others produce their own, while there are also those who would drop ship.

Of all the selling practices available these days, arbitrage exhibits a double standard which large marketplaces don’t appreciate.

Call it a one-way street where only the seller benefits while consumers and other retailers are disadvantaged.

Although it was historically identified with bricks-and-mortar shops, where arbitrageurs would buy items for a song and then sell them at a higher price, retail arbitrage has inevitably evolved into an online scheme which many businesses earn from.

The Adulterated Arbitrage Scheme

Compelling consumers to spend more than is required is totally okay as they have the choice not to.

What poses as a problem with online retail arbitrage, specifically on marketplaces, is the deliberate failure to fulfill orders.

In other words, a marketplace arbitrageur gets the retailer from whom they purchased an item dirt cheap to fulfill their customer’s order. If the item turns out to be defective and the customer wishes to return it, they will contact its original source and not the arbitrage seller.

The Ill Effects

Marketplace sellers who use arbitrage are starting to lose sales specifically on the eBay platform.

Gone are the days when they could make easy money by copying listings from another website like Amazon and reposting them to eBay at higher prices.

It costs nothing except a software for sourcing products from other marketplaces, plus it entails no responsibilities.

However, eBay won’t tolerate such scheme, hence preventing sellers who are practicing it from making any more sales.

That’s according to SaleFreaks, an Israeli company that offers an all-in-one retail online Amazon to eBay arbitrage tool, who have joined forces with their clients to file a legal case against the renowned marketplace.

They said the listings of their clients on eBay have not been showing up in the Best Match search results, hence resulting in lower sales.

The company’s CEO, Adi Reiss, accused eBay of manipulating the Best Match results, stating on Facebook:

“eBay admitted that they indeed manipulated the “best match” search results against “dropshippers” relative to sellers not “dropshipping” from online sites in order to “preserve eBay’s integrity” and “protect purchasers.”

It may sound like eBay do not support dropshippers, but their website says otherwise. In fact, they explicitly define drop shipping as:

“Typically used by sellers who buy stock in bulk from their supplier. After the seller receives an eBay order, they work with the supplier to have the item sent directly to the buyer. If you use drop shipping, you’re still responsible for the safe delivery of the item within the timeframe you stated in your listing, and the buyer’s overall satisfaction with their purchase.”

There you have it, straight from the horse’s mouth.

It’s now clear that drop shipping from other websites is permissible, but any other method, especially one devoid of customer accountability, must be given a second thought.