Pawn Stars, American Pickers & Efficient Markets

Back in May of this year, I wrote a post concerning a popular History Channel program, Pawn Stars. I find the program to be a great exposition of business model implemented by owners who grasp the model and typically stick to it.

Expanding on the historical theme of vintage items, the History Channel added a program called American Pickers. The two stars of that program are Iowa-based friends of middle-age who drive across America seeking vintage collectibles which they 'pick,' to resell through their shop.

Whereas the pawn brokers are essentially deal-takers, due to the nature of their walk-in business, the pickers are deal-makers who typically offer a price, and certainly negotiate.

Having watched a fair number of episodes in both series, I've come to wonder how long the American Pickers can sustain their program and their business model. Here's why.

The pawn brokers have their customers freely offer goods, usually because they want money for the items, and either don't want to, or can't pursue a narrower, more specialized market segment in which to maximize the value of their wares. Time and again, people bring valuable, vintage firearms or curios, only to be talked into values which are half of what Rick and his crew allege they will get for the item, after it ties up their working capital for months.

Every time I hear that line, I think to myself, if it were me, I'd be heading over to a specialty dealer, if I hadn't done that in the first place. Whenever the weapons experts makes an appearance to authentic some rifle, pistol or knife, I wonder why the seller hadn't just gone to directly that expert's shop? Well, obviously, those who do aren't on Pawn Stars. But it's surprising to me how much money is probably left on the table by naive sellers.

Still, everybody understands that the pawn brokers want a 50% margin, although they might not understand the pawn shop's ultimate sale price, of which they may receive half, will be lower than more specialized buyers.

The American Pickers, however, seem to be playing a more dangerous game. They cajole and push old collectors into parting with items on a largely unsolicited basis. Sometimes they are invited to visit and buy items, but, typically, they are pressing themselves on people who've collected massive amounts of what most people would call junk, begging to buy some of the items.

Quite often, they will drive a good bargain, as illustrated by the end-of-show tallies of the prices they paid for various antiques, and what they believe to be the market price they can realize. Sometimes they have markups of as much as 200%!

Now, if you are a collector who's been visited by the American Pickers, won't you want to watch the program to see yourself? Then, won't you become a little irritated when you see the pickers post so many items with margins in excess of 50%?

How likely is it that the pickers from Iowa can make it through three seasons without either losing their sources, or watching their margins shrink below 50%?

Would you sit still for these guys to manhandle you over various vintage items after you saw them publicly exclaim how they bought something really valuable off of you at some embarrassingly low price?

I think Pawn Stars is pretty entertaining and, due to the nature of its customer base, has at least a few more seasons to run. Its History Channel derivative series, American Restoration, starring the guy who does most of their vintage vending machine and similar merchandise restoration, will also likely have a non-toxic effect on his own business model. That guy, again, has a willing, walk-in clientele eager to realize value.

But the efficient markets being openly created and publicised by the pickers strike me as likely to undermine their own business model, and soon.

One only has to look to the markets for financial instruments to see how a little pricing information, made public, tends to rapidly collapse margins, as well as spawn competitors. All of which tends to ruin what was once a quiet, dark, smaller but more lucrative market in whatever items now become so publicly priced.