A marketplace created from the re-selling of collectable retail items. Secondary markets are driven by fads and often fad quickly. Examples include Magic, the Gathering, Beanie Babies, Comics, and Baseball cards.

Ebay is a great example of secondary markets.

In general, any market where property can be sold after its original sale is a secondary market. Stock trades--where securities change hands between two participants at a mutually agreeable price--take place in the secondary market. The exception to this is if you purchase shares in a company's initial or subsequent public offerings: in this case, you purchase the shares directly from the company (or its investment banker)--right from the primary source. Secondary markets exist for many types of property.

Since modern commerce began, a secondary market was restricted to tangible goods. Services, by their transitory nature, were of course not eligible for resale. Anyone who bought a thing could sell it back in an attempt to recoup some of the value which they spent purchasing a thing. This is known as the first sale doctrine.

Some consumable goods may be found at such secondary markets as eBay or your local "discount" store (a business which buys liquidated stock from other stores and then resells the goods at deep savings—a good place to buy questionable dairy products, old candy or remaindered books).

If you have ever been to a thrift store or a flea market or a used book store, then you already know how secondary markets work. But for the sake of illustration, say you log on to half.com and end up getting a copy of that favorite book of yours that got lost in a move. You find it at a good price and look at the seller's other items. This same seller is also selling a copy of that computer rpg you never got around to years ago. You decide to get both the book and the game. You play the game before you get around to the book and your dog ends up eating the book while you're lost in the game. After you beat the game you decide it's best if you try to sell it so you can justify buying another copy of that darn book. You can put the game back on half.com, take it to Gamestop, put it on Craigslist or try to sell it at a yard sale. All of which mean saying goodbye to that game once and for all.

The computer program which runs the game is a digital object. All digital objects have, by virtue of the limitations of technology, been excluded from any secondary markets. In the days of dial-up modems, most computer users were not willing to tie up their phone lines all day just to download free programs from a BBS. But there did exist a dedicated elite minority with either nocturnal patterns or simply did not much use their land line to make or receive phone calls—or they had a special phone line, just for their modem. Or University access. But the point is that the exclusion of digital objects from secondary markets was largely more for practical reasons at first—the necessary infrastructure simply did not exist and computer software was still a nascent industry and the courts decided to protect software developers by prohibiting any copies outside of personal use. You could buy used software (much like you can with a book) but you could not legally trade just the digital object.

Except now current advances in bandwidth allow for digital objects to be transferred easily and quickly. It's been done illegally via file-sharing for years now, but now large corporations want to play middleman. In order to make this transfer of content fair, the idea is to delete the previous owner's copy of a given digital object—either once the digital objects are placed in escrow or bit by bit, during the upload. By deleting the original copy of a digital object, there is technically no piracy being committed—simply a transfer of ownership.

Last month, Amazon.com was granted the patent for a technology allowing for the resale of digital objects. The abstract of that patent states:

"An electronic marketplace for used digital objects is disclosed. Digital objects including e-books, audio, video, computer applications, etc., purchased from an original vendor by a user are stored in a user's personalized data store. Content in a personalized data store may be accessible to the user via transfer such as moving, streaming, or download. When the user no longer desires to retain the right to access the now-used digital content, the user may move the used digital content to another user's personalized data store when permissible and the used digital content is deleted from the originating user's personalized data store. When a digital object exceeds a threshold number of moves or downloads, the ability to move may be deemed impermissible and suspended or terminated. Additionally or alternatively, a collection of objects may be assembled from individual digital objects stored in the personalized data stores of different users, and moved to a user's personalized data store."

By obtaining this patent, Amazon has changed how copyright applies to digital objects. So what this means is that Kindle owners can decide to resell their e-books, just as one would a physical book. Except a given digital copy may be arbitrarily limited to being resold a finite number of times which makes the secondary market scarce (at least temporarily: note that in the bold text above Amazon reserves the right to reinstate the revocation of resale rights once they have decided it is favorable to do so). Likely there will be more stringent resale stipulations for newer bestsellers than for older books. Given the excessive inital printing runs for many overhyped books, it is possible that a obtaining a physical copy of the bestseller from four years ago (should Amazon still have a restriction on the resale of the title in question) will be cheaper than buying the same title as a pre-owned e-book—although the cost of shipping may end up making the difference negligible.

Scarcity is also enforced by deleting the original owner's digital copy upon upload.

All of this has led one wit to wonder whether used e-books will include simulated coffee-stains and selected passages pre-highlighted. A more real concern is how well Amazon will be able to prevent the DRM on their e-books from being hacked. Seeing as their patent had been pending since 2009, one would think that Amazon has a plan. However, one pundit theorized that Amazon will not actually go ahead implement any sort of digital reseller store, and plans on simply preventing others from doing so. But that view doesn't make sense, as there's money to be made and Amazon wants to make money. 

Besides, Amazon is not alone in remapping the internet to include secondary markets.

In October 2011 a new start-up called ReDigi went into beta. Founded by entrepreneur John Ossenmacher and MIT professor Larry Rudolph, the company allows users to purchase new and "used" digital content as well as reselling their unwanted files. Users can also stream their files from mobile devices. All of this is done using Cloud computing. Much like with Amazon's proposed plan, resellers on ReDigi delete their own original copy upon uploading a digital object for sale. 

In January 2012, Capitol Records filed suit against ReDigi in the New York Federal Court. Damages of $150,000 for each of its tracks in use by that site. No individual users are being sued, just the start-up. U.S. District Judge Richard Sullivan denied the preliminary injunction; the case is ongoing at this time. ReDigi is still in beta and their patent is still pending. But they're open for business!

A similar case against ReDigi arose in the European Union. The Justice there decided on July 3, 2012 in favor of the rights of consumers to resell their digital content in a secondary market such as ReDigi.

More recently Amoeba Records began reselling digital copies of out-of-print vinyl. The record store has publicly vowed to compensate all artists (and their descendants) but it is unclear whether whichever company currently holds the rights for a given record will file suit for any infringement of their rights as the records in question are essentially abandonware.

Perhaps some poor sod will decide to sell their classic vinyl rips that they bought from Amoeba to a company such as ReDigi? The idea of Amoeba suing over that seems absurd, but as the law currently stands, they would be allowed to do so. More realistically, there are concerns over these sites getting hacked. Or users ripping their CD music collection and then uploading their new mp3s onto a secondary market.

 

But "traditional" secondary markets of tangible goods are now under scrutiny. In October 2012, the US Supreme Court began debating how to restrict the sale of goods purchased from another country—items which the government received no tax dollars for and which may, in certain instances such as textbooks be had new for far less from overseas markets. That case (Kirtsaeng v. John Wiley & Sons, Inc.) is still being debated as of now but it is something that many are watching closely, as it seems rather unfair to prevent everyone from using a secondary market just because a few folks are putting a dent in the coffers of publishers of overpriced textbooks. 

But the point of the matter is that unless the US Supreme Court comes to a very narrow decision, such online retailers as Etsy, Ebay, half.com and bricks-and-mortar businesses such as used book stores and thrift shops may be deemed illegal.

As a counter-example to the textbook thing: I knew a guy who financed multiple trips to a certain Scandinavian country by selling just-released iPhones on Craigslist. Affluent citizens of this particular country wished to have the latest release of that smartphone before their neighbors did & they were willing to pay in excess for that privelege. When this guy would enter the country, he would declare all 60 of his iPhones as being "personal gifts" for friends. He ended up making a ridiculous amount of money while essentially on vacation. And he'll never be legislated for those sales because Apple's not mad about selling more smartphones faster.

And within the video game industry, publishers have prevented owners of consoles who download games from reselling their titles. There is also a movement to preventing the resale of physical game discs.

Sooner or later, copyright laws will have to be amended to allow consumers comparable rights of ownership for digital property as they have for physical goods, all while protecting the rights of the content providers and creators. The trail is already being blazed by ReDigi. It is very possible that Amazon is biding its time until ReDigi's legal demise before including music in its virtual flea market.

With the advent of cheaper, better technology and cheaper, faster international shipping—allowing consumers greater freedom to buy and sell—the concept of the secondary market is expanding in the online realm as it faces the looming threat of more severe restrictions overall, should the US Supreme Court decide in favor of the text book manufacturers.

As the secondary market

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