Ratebeerians

Market Behavior for Rare Beer: eBay Auction Prices in Review

I. Introduction

In the online community of beer enthusiasts, fanatics, and geeks, there is an elephant in the room. eBay has become an increasingly popular market for rare beer. Just a few years ago, special beer releases were attended by a select few; they have now morphed into major events promoted over social media and the online beer community. The upside to this is more exposure for a small brewery with a coveted, rare, special-release beer. The downside is that now beer releases are packed with fans and entrepreneurs alike. The latter are willing to wait in line and go to great lengths to buy a beer at the normal price and then auction the bottle over the internet for, in some extreme instances, ten times the original price or more.

With very few exceptions, every rare beer that is released around the world, and even some that are never officially released to the public, makes its way onto eBay. This is because a growing number of people have found that there is profit to be made in this “gray” market for reselling rare beers at auction. Though selling alcohol for consumption on eBay is illegal[1], hundreds of transactions for alcohol are allowed to take place every day on the website thanks to an addendum that sellers are required to post for beer, wine, and liquor auctions:

1) The value of the item is the collectible container, not its contents.
2) The container has not been opened and any incidental contents are not intended for consumption.
3) The item is not available at any retail outlet, and the container has a value that substantially exceeds the current retail price of alcohol in the container.
4) The seller will take all appropriate steps to ensure that the buyer is of lawful age in the buyer’s and seller’s jurisdiction (generally 21 years of age).
5) Buyers and sellers both ensure that the sale complies with all applicable laws and shipping regulations.

The gist of the addendum is that it serves as a loophole. Beer, wine, and liquor are sold under the guise of a “collectible bottle” that may happen to still be filled with alcohol, but the alcohol has insignificant value compared to the actual glass bottle and label. Whereas a beer’s value can be somewhat subjective and negotiable in the online trading market, thanks to this loophole, eBay auction prices assign hard value to certain rare beers. In other words, eBay serves as a conduit for determining gray market prices of rare beer, also allowing one to observe buyer/seller behavior.

The purpose of this paper is to assess if eBay’s loophole logic holds: do people value the rare beer bottle in and of itself, or the contents inside? The analysis will also explore how variables like vintage and rarity, as well as other people’s perceptions of a rare beer, can affect value.

II. Methods

Twice a week for thirteen months, eBay was scoured for rare beer auctions by searching for certain key words: lost abbey, bruery, cantillon, fonteinen, russian river, three floyds, alesmith, surly (brewing), bells (batch), hair of the dog, cigar city, and (portsmouth) kate the great, among others.

All beer auctions tabulated were “no reserve” (NR) true auctions. No “buy it now” (BIN) sales were tabulated since these are not auctions and usually the BIN prices are much higher than the normal auction prices. The true auctions that were tabulated included the following in the dataset:

• Name(s) of the beer(s) (and vintage(s) if applicable)
• Number of bids for the item
• The final gross auction price for the item
• The shipping cost for the item
• The date the auction ended
• Number of bottles in the auction
• Volume of the bottle(s) in mL
• The final gross auction price for the item by volume (12oz or 355mL was used as the standard)

Many auctions did not specify the exact liquid volume of the bottle in question. However, these beers are familiar to the author and there are only a handful of different bottle sizes for beer (330mL, 355mL, 375mL, 651mL, and 750mL being the most common). From looking at the auction pictures and description details, bottle sizes were entered into the dataset.

In many cases, auctions are for multiple bottles. Two bottles is fairly common, while sometimes an entire lot of beer is auctioned. These final prices are difficult to compare to the prices for beers in standalone auctions. Because lot auctions usually sell for a discount compared to bottles sold individually, it is difficult for coupled bottles to be “separated” from each other. Thus, in most cases, lot auctions are omitted from the analysis.

It would be wrong to say that every rare beer auction on eBay from February 2010 to February 2011 was captured in this dataset. And there is also the subjectivity of what constitutes “rare.” Many beer bottles were auctioned on eBay during this study period that were not considered “rare” by the author’s subjective viewpoint.

There are a few weaknesses in this analysis. First, eBay is not a perfect marketplace to gauge the value of rare beers since the bidders are presumably specialized collectors and enthusiasts. Also, auction markets create a stepped demand curve. Say there is a bottle of Cantillon Blåbær for sale right after the release and it sells for $250. Now the person willing to pay $250 has left the market, at least theoretically, and would not be bidding on another bottle. So the next bottle may sell for $220 because the first person with the highest willingness to pay (WTP) already has his or her coveted bottle. And this phenomenon progresses down the market in a stepwise fashion. It may seem like the value of Cantillon Blåbær is declining, but this would be a misnomer. The most extreme case of this drop was a small, 375mL bottle of Cantillon Don Quijote that sold at auction for $330. It was the first time the beer had ever been on eBay. The next time it showed up for auction, it sold for $326, but the bottle was 750mL. So the person with the highest WTP paid nearly double the subsequent person by volume.

There are also some apparent instances of information asymmetry in the rare beer market. If someone is willing to pay $330 for a bottle of Cantillon Don Quijote, it is unlikely they have ever had the beer before. Thus, bidders on eBay may be purchasing goods in which they can only speculate about the quality of the product. They likely have read reviews online and heard about the beer by word of mouth and beer community hype, but it is hard for them to gauge their own valuation of the beer having not tried it. Thus, the prices in this dataset may reflect specific collectors’ or enthusiasts’ perceived value of a certain bottle and not necessarily the actual market value.

III. Results

The dataset consisted of 887 different finalized rare beer auctions between February 1^st, 2010 and February 28^th, 2011. The average gross selling price was $122, or $137 with shipping included.[2] Final prices ranged from as little as $9.50 for a bottle of Bell’s Batch 7,000 to as high as $999 for a bottle of Midnight Sun M.[3] The average price by volume for the rare beers included in this analysis was $58 per 12oz (a standard beer bottle size in the US). Final prices by 12oz volume ranged from $7.57 for Cigar City Humidor Jai Alai to $545 for the aforementioned bottle of Midnight Sun M. Lot auctions comprised 87 of the total auctions tracked, or almost 10%.

From the sample of 887 auctions, 451 items (51%) sold for $100 or more without shipping included, while 128 items (14%) sold for at least $200. These included lot auctions. For total auction prices by 12oz volume, 105 items (12%) sold for over $100 while twenty-six auctions (3%) were for over $150. The five most expensive auctions by 12oz volume were:

1. Midnight Sun M: $544.77
2. Cantillon Don Quijote: $312.40
3. Cantillon Rose de Gambrinus 1992 Vintage: $284.00
4. Russian River Depuration: $265.07
5. Flossmoor Station Wooden Hell: $260.12

A handful of breweries make up a disproportionate amount of the auctions in the dataset: Lost Abbey/Port Brewing (n=182), The Bruery (n=120), Three Floyds (n=117), Russian River (n=81), Cantillon (n=50), Alesmith (n=37), Cigar City (n=35), and Surly (n=33). These eight breweries accounted for 74% of the auctions. All of these breweries are American save for Cantillon in Belgium.

There are also specific rare beers that are frequently found for auction on eBay. These include Three Floyds Dark Lord (n=103)[4], The Bruery Black Tuesday (n=55), Lost Abbey Isabelle Proximus (n=39), Russian River Beatification (n=32), and Surly Darkness (n=32). These five beers accounted for almost 30% of all rare beer auctions.

Just from observing the raw data, there is an obvious trend: selling beers in a lot will rarely command the same price as selling the beers individually. Looking at Figure 1, if one were to sell each vintage of Three Floyds Dark Lord separately, the total revenue from all auctions combined would reach $800, assuming each bottle sold for the average price. But when a vertical (or a complete set of a certain beer’s vintages) was auctioned, it sold for only about $650. Likewise, a lot of three 2010 vintage Black Tuesdays sold for $250 when one could expect each to sell for $103. A lot of six Isabelle Proximus sold for $824, when individually they sell for $157 on average ($942 for six).

Figure 1: Average Value of Three Floyds Dark Lord by Vintage (n=92)*

[*The sample size here is 92 instead of 103 as lot auctions were removed.]

From Figure 2, it is interesting to note that a spike of Dark Lord auctions on eBay takes place at the end of April and early May. This uptick likely coincides with the official beer release from the brewery. However, during the study period only one vintage of Dark Lord was released, the 2010 edition. Though there was certainly a flood of 2010 bottles into the marketplace in April/May from people who attended the release, there were also many auctions for just about every other vintage of Dark Lord. This may be because sellers assume that Dark Lord enthusiasts will be scouring eBay around this time for bottles. One would think that a massive amount of auctions at once would bring down the average market price because the market has been flooded with the good. But the final price of Dark Lord 2010 stood about constant throughout the year, implying demand remained strong despite the uptick in supply in April/May.

Figure 2: Value of Three Floyds Dark Lord by Vintage over Time

For Dark Lord (Figure 2), it is hard to make many conclusions by vintage except to say that the 2009 and 2010 had roughly the same value over time and that the value of the 2006 vintage appreciated the most over time. Auction price trends indicate that vintage of Dark Lord drives value, albeit to a lesser degree in recent vintages. This may be for a few reasons. First, Dark Lord 2009 was generally considered by the beer community to be inferior in quality and thus does not have a major difference in price to the more readily available, but still quite rare, 2010 vintage. But the value added was minimal for the 2007 and 2008 vintages, both considered very good batches. So it would seem that the vintages that had a major appreciation in value were the first three batches. This may be because of their relative rarity, as many of the older vintage bottles have already been consumed and the production count for these vintages was much lower than in recent years.

The same holds for The Bruery Black Tuesday, where in Figure 3 the older vintage is treated as an entirely different entity vs. the 2010 vintage by eBay bidders. The average selling price for a bottle of the 2009 first release was $147 while the second release was $103. The value of the 2009 vintage continued to increase even after the 2010 release and subsequent flooding of the marketplace with the newer vintage. Thus, there are apparent patterns in how people value different vintages of a beer.

Figure 3: Value of The Bruery Black Tuesday by Vintage over Time (n=55)

Figure 4 displays auction prices rather than vintages of what should be almost the exact same “collectible bottle” but with different liquid contents. On a random basis, Lost Abbey/Port Brewing in San Marcos, CA releases special experimental batches in very small numbers called the Veritas series. Though the bottles that contain them are the exact same save for a number written on the back in Sharpie marker, there is a clear difference in how people value the liquid contents. Using data from my makeshift model shown in Table 1, it is strange to find that Veritas 004 appears to be the least rare of the series (although this may not be the case). However, its average price is ranked at third. So the major factor in determining its value is not simply rarity, but perhaps how other people view the beer. Using online ratings from RateBeer and BeerAdvocate, 004 is assumed to be the second best of the Veritas series. In the opposite direction, Veritas 008 is technically the rarest by remaining bottle count after Veritas 005, but it carries the lowest market price. This is assumed to be a manifestation of poor reviews from other beer enthusiasts. By looking at the data, Veritas 008 is definitely an outlier with mediocre reviews compared to stellar for the rest of the series. In general, this small subset of data suggests that other peoples’ perceptions are a strong component of auction price.

Figure 4: Value of Lost Abbey Veritas Series over Time (n=55)

Table 1: Lost Abbey Veritas Series

Finally, probably the most obvious manifestation of people valuing the contents instead of the actual bottle comes from an auction of Lost Abbey Yellow Bus, a beer that was never officially released and never was given a label or artwork. This blank bottle, having no indication of its contents save for the seller’s description and a Lost Abbey cork and cage, sold for over $400. It is considered the best American sour ale of all time on RateBeer and has an A+ average on BeerAdvocate.

IV. Conclusion

eBay’s alcohol policy is clearly being abused. The “collectible bottle” loophole represents a very flawed piece of logic that has effectively allowed hundreds of alcohol transactions to occur each day on a site where selling alcohol is illegal. If an individual is willing to spend thousands on a bottle of rare Bordeaux for just the bottle and label, they could certainly buy a cheap bottle of red wine and apply a rare Bordeaux’s label from an empty container, which could be found for a fraction of the price. (Alternatively, the label could be used to create a counterfeit bottle as described above and sold for many times the value of the empty bottle with label.[5]) For display and collection purposes, this would essentially be the same thing. If one were to argue that the value of the collectible is having the actual rare alcoholic liquid inside the bottle even if the liquid is never to be consumed, then the high auction price is indeed for the alcoholic liquid and not the bottle!

eBay is obviously a popular marketplace for rare beer, but it is starting to alter the way rare beer exchange is conducted. Within days of The Bruery releasing one bottle of Chocolate Rain to its Reserve Society members, many of these bottles went on eBay selling for over $200 per bottle and some for over $350 (the entire Reserve Society membership costs $195). In many auctions, people offered up their Chocolate Rain allotment as well as the single bottle allotment of Sour in the Rye. Sometimes even their Reserve Society duffle bag was thrown in! In short, people signed up for the membership solely to make a profit on eBay with no intention of consuming the beer.

Though the eBay gray market for rare beer is large, it primarily affects a handful of specific breweries. The market for Dark Lord and other special beers is very large and continues to grow by word of mouth and by online reviews. But distribution of Dark Lord and other rarities are generally cyclical, small, and isolated. Trading beers was once the modus operandi for surpassing these barriers allowing people not privy to a special beer’s distribution to obtain a bottle. But more recently, eBay is giving the enthusiast the opportunity to use hard currency as an alternative to barter.

One consequence of this new monetization of beer collecting and trading is that certain traders or enthusiasts may increasingly leave the trading arena for the profits to be made on eBay. In fact, there have been blatant cases where instead of someone wanting to trade extremely rare beers within the online community, they were drawn towards the liquidated value of these beers. This takes many special beers supposedly out of the online trading circle and into oblivion. Another consequence is that traders may begin valuing their beers according to an eBay average. This could shift the value of specific beers for better or for worse. If a relatively unknown beer has a low trade value but sells for $150 on average on eBay, it is a logical conclusion that its trade value would be equal to any other beer that sells for $150. Now that there is large gray market to put hard prices on rare beer, trade values may start changing from subjective values to gray market average values.

V. Comments

• One of the most interesting things that came out of this research is not beer related whatsoever but pure auction theory. If a Russian River Deviation was put up for $300 BIN, it would remain unsold for many weeks or would never sell. But if the same beer was truly auctioned with no reserve, it would frequently surpass the $300 mark. This may be because a potential buyer has decided they have a WTP of $200 for the bottle. But as they get into a bidding war, the buyer’s WTP somehow increases in an irrational fashion to simply win the auction regardless. There could be an “ego” variable in this person’s demand function. It may also be a function again of information asymmetry. The potential buyer has heard of Russian River Deviation, knows it has excellent reviews and is quite rare, but still is unsure of how good the beer is and how few bottles remain. The potential buyer may originally have a WTP of $200. But as they see four or five other buyers willing to spend above $200 for the bottle, they may reevaluate their WTP.

• There are a few tricks eBay sellers use to mislead beer collectors and enthusiasts who may not be in the loop on beer current events. For example, a few auctions for The Bruery Black Tuesday claimed the beer was “never going to be made again.” This is simply false. This marketing technique worked since that particular bottle of Black Tuesday sold for over $50 more than the average price. In the opposite direction, one seller misspelled Drie Fonteinen making their auction harder to locate using eBay search. The final auction price of that Drie Fonteinen J&J Blauw was about $100 less than the average price.

• Though the exact eBay feedback number was not tallied for the seller in every auction, the vast majority of auctions were from users with low feedback numbers (less than 50 eBay transactions). In fact, many brand new accounts were created exclusively to auction off certain beers or a good portion of a person’s beer cellar. These all point to new people entering a market to profit from the demand for rare beer. And unfortunately, the auction prices show that there is plenty of room for new entrants in the market for rare beer, and entry will continue as long as sellers can collect “economic rent.” In other words, there are excess profits that sellers are making thanks to having a rare good for sale in an undersupplied market. Specifically, this is called “scarcity rent.”

• It is certainly worth noting that those who sell rare bottles of beer on eBay are not so far removed from the beer sites of RateBeer and BeerAdvocate. There is a surprising amount of overlap. This constitutes an area ripe for arbitrage. For instance, a crafty eBay seller and beer trader knows that he can sell a Black Tuesday 2010 for around $100. But this crafty fellow knows on the beer trading forums they can trade a Black Tuesday 2010 for a Dark Lord 2006. They may also know the Dark Lord 2006 will sell for around $150 on eBay. One could trade and then auction and pocket the difference. Thus, there is money to be made by people exploiting the different ways eBay bidders and beer traders value certain beers. (This is known as “rent seeking” when someone profits from asymmetry.) In fact, there are even arbitrage possibilities between RateBeer and BeerAdvocate since certain beers have extremely different relative values between the two trading communities of each website. Whether or not this arbitrage exists in any large form has yet to be seen as it involves quite a bit of time and can yield possibly mild financial gains. It may also yield severe stigma from the online beer trading community and deter potential arbitragers.

• Almost all beers in the dataset are one of four beer styles: imperial stout, barleywine, traditional Belgian lambic sour ale, or American sour ale. These styles are generally regarded as the most difficult (and/or time consuming) to produce (especially sour ales) and create the highest financial burdens for breweries. Thus, they are commonly special releases with lower bottle counts.

• As far as average prices for specific beers, a complete listing is omitted from this study because of the potential arbitrage possibilities described above. In other words, the raw data from this study is very ripe for abuse.

[1] See “eBay Alcohol Policy” at http://pages.ebay.com/help/policies/alcohol.html.

[2] Shipping costs on eBay are almost always at $15 per beer auction (regardless of bottle size), with an average of $14.85 for the entire dataset. They are omitted from the rest of the paper.

[3] The most expensive item sold during the study period was actually a $12,800 bottle of Dark Lord 2010 that was put up for auction before the beer’s official release. Since this bottle was purportedly taken out of the brewery without the brewer’s permission, the auction was attacked by multiple bidders who bid the price up to an astronomical amount and then presumably did not pay for the item.

[4] It is important to note that so many bottles of Dark Lord are sold on eBay around April/May that a fairly good amount were tracked but not every single auction was tabulated since they were typically homogenous: 2010 vintage and selling for ~$50 each.

[5] Wine counterfeiting is a growing industry, as detailed in this 2007 article from the New Yorker: http://www.newyorker.com/reporting/2007/09/03/070903fa_fact_keefe?currentPage=all

[6] Reviews from both RateBeer and BeerAdvocate were tallied only for reviews written before February 2010. Thus the hypothetical bottles remaining is an imputed estimate of the bottles remaining at the beginning of February 2010. This is used as a surrogate for rarity. It would be crude to assume that every bottle consumed was rated by someone on these sites, but there is no other way to know how many bottles have been consumed except by this measure. Unfortunately, many reviews come from the same bottle being shared, so there is no surefire way to know exactly how many bottles remain. Since rarity cannot be tabulated with empirical data, this measure provides one way to estimate rarity, but is not robust enough for critical analysis.

[7] This is the average of user reviews on a 5 point scale (5 being perfect) from the beer’s BeerAdvocate simple mean and RateBeer weighted average (Veritas 005 has too few reviews on RateBeer for the weighted average to be useful, so a simple mean is used). This combined score is used as a surrogate for quality.

[8] This is calculated using the average final auction price on eBay from February 2010 through February 2011. Veritas 001, 002, and 005 only had one auction each so their values may be far from the true mean.

[9] Bottle count data comes from http://www.lostabbey.com/about/faqs/ assuming 12 750mL bottles per case.

[10] This bottle count comes from http://beernews.org/2010/10/the-lost-abbey-update-veritas-008-4th-annual-barrel-night-cuvee-de-tomme/.

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