This non-copyrighted article may be reproduced in any philatelic publication as long as the author's name, original source publication and the CAC's on-line web address is listed.

This article is a compilation of questions from the Internet stamp group rec.collecting.stamps (r.c.s.) relating to stamp prices. More than a dozen sources were used for this summary, which was strongly influenced by my own experiences and knowledge limits. Much of the information given in the r.c.s. answers was based on personal experience, making great anecdotes but little statistically sound analysis. The topic of stamp-market pricing mechanisms might serve as a viable master's degree thesis for an economics major.

(The newsgroup r.c.s. later split into two groups, rec.collecting.stamps.discuss for philatelic discussions and rec.collecting.stamps.marketplace for buy and sell postings.)

This document remains a work-in-progress. My summary is below, but the gist of it is that "people really pay" varying amounts for the same material, depending on what stamp "market" they use to get material. What started this project off was this question:

"I was looking through my latest Scott catalogue and comparing book value with stamps being traded in an Internet auction. Most stamps were offered at prices well below book value. Judging from the pictures and the few I bought, they seemed to be of decent quality. How can this be? Why would anyone sell for so much less?"

I. THE MARKET

A. Market segments
For purposes of discussion, "stamp market" is any mechanism used to legally transfer ownership. The market includes retail shops, mail sales, auctions-including circuit books, bourses, and trading. These segments have fairly little overlap except for the ever-present arbitrageurs known to Pat Herst's readers as satcheleers.

All of these markets need both a willing seller and a willing buyer. If the buyer is a dealer, he expects to resell at a profit. If the buyer is a collector, a selling collector may get a higher price but probably will have to sell the collection item by item.

New buyers come from the outposts in department stores, from advertisers in daily papers and on television, and from post offices. Without the entry-level expensive marketplace, the market from which collectors like to buy cheaply would gradually cease to exist, because it does not reproduce its customer base from within.

The biggest stamp retailer, Mystic Stamp Company, marks up to about double Scott, because its advertising in mass circulation publications cannot be sustained by intra-hobby prices. Yet Mystic brings more new members to APS than any other recruiter, and sometimes more than all the others combined. Many of those customers, once familiar with the hobby's own marketplace, probably switch to less expensive suppliers. Even, so Mystic does well enough to support a weekly full-color, full-page spread on the back of Linn's Stamp News, and other full-page spreads inside.

Meanwhile, all other segments face competition from below-market sellers in Linn's classified ads, APS sales circuits, and on-line auctions, usually of retired collectors who are disposing of their personal collections. Each discrete segment has its own value system, which only indirectly affects the others. The value systems can only "only indirectly affect the others" if the buyer, seller, or both are unaware of them, unable to access them, or are uninterested in them for a particular transaction. See my comment on "instant gratification" below.

1. Retail shops
The amount of turnover done in any big city, high overhead retail shops has to be a minuscule portion of the world's stamp turnover. Vastly more turnover is gained in auctions, circuits, net sales, trades, shows, etc., than in stores in cities. The value of a stamp can't be set on the value plus costs of doing business, as value in purest terms is the highest amount someone is willing to pay at any given point in time. Scarcity plus demand drives prices, not a combination of scarcity, willingness to pay, and the other guy's excess overhead.

That's why high overhead shops such as Gimbels/Minkus/Robinsons, et al. bit the dust. They had a good run until auctions, shows, small shops, and mail order became well organized and easily accessible. The key point here is that the alternatives had to get organized and be easily accessible. Big-city downtown stamp shops are still a fixture of the marketplace in the cities such as Chicago, Frankfurt, Hamburg, London, etc., despite their high retail prices.

2. Mail sales
These still serve the market for those with limited access to the other sources of stamps (trading, retail sales, auctions) or for those seeking special material.

3. Auctions
In an auction, there IS always a seller, but no GUARANTEE of buyers. As a result, an item of little interest may go at a very low price. An item with strong interest may go far above auctioneer estimates or even catalog prices. This is just a matter of economics and a function of supply and demand. Since the stamp market is very fragmented and inefficient with regards to pricing, price fluctuations can be tremendous.

A particular lot or collection in an auction may only be exposed to a limit number of buyers at that moment. If there is a lack of interest at that moment, or the buyers are not the right bidders for that kind of material, the lot can be sold at substantial discount to catalog. Dealers have to buy the stamps cheaply enough to make a profit on them.

This means dealers often make offers for stamps and collections that might seem like an insult to the average person. Selling at auction gives the collector an opportunity to. eliminate much of the overhead. He can get a better price for selling AND a better price for the buyer of the stamp, too, than they might otherwise get.

Most auctioneers say that the majority of their lots are sold to dealers for resale to customers at a profit. This point became contentious when Scott switched to retail valuations. At first, Scott relied on auction realizations to calculate those values. Dealers howled, claiming that such were actually wholesale prices, from which they marked up substantially.

The previous collector's comments on the pricing mechanisms within the US market are interesting and useful, but not entirely paralleled in Europe. This is particularly true in regard to the destination of most auction lots. It may well be true in relation to collections and/or other "mixed" lots, but then these are of no use in indicating market prices of individual stamps.

Internet auctions became very popular after this article was first written. They seem to be provide buyers with a range of material broad in price and quality. The exposure to a world-wide audience tends to help good material to draw reasonable bids, albeit usually well below full Scott values, except for items having some special feature not recorded by Scott.

A. Live
Buyers have a chance to examine the material in detail, but the auction exists at one moment in time. Unlike a retail shop or mail order house, the buyer probably has no chance to try for the same lot tomorrow or next week.

B. APS Circuits
Collectors always should sell below retail, because they do not have dealer overhead costs, yet other collectors will readily pay more than dealer buy prices. Despite that rather obvious point, collectors often don't "get it." Looking at circuit books submitted to the APS Sales Division, most dealers price their material to sell at about half Scott, and it tends to move quickly, so they get their checks after just a few months. I have grouped APS circuits under "Auctions" because any one circuit book gives a one-time chance at a particular stamp.

C. Mail/Internet
There is a web site, http://www.stampfinder.com, that lists thousands of stamps for sale. The listing gives both centering and catalog price, as well as the sale value. Because the deal must be finalized with the owning dealer, whose name and address I think one gets, there may be room for negotiation. But it could be fairly close to a real open market and should drive catalog prices to the same values. The Internet is helping collectors to learn about the real stamp market.

4. Bourses
These are a convenient way to examine material up-close-and-personal, and with a range of dealers available. The buyer has a chance at instant gratification.

This is an inexpensive way to convert duplicates or unwanted material into wanted material. Trading range has been expanded by Internet listings of others interested in trading. E-mail makes for quick correspondence and decisions.

B. Sellers
If the buyer is a dealer, he expects to resell at a profit. If dealers don't stay in business, the collector loses access to supplies and has access to stamps only through trading and new issues. Thus, the collector has an interest in having dealers make enough profit to stay in business. Dealers have to move inventory to do that. A dealer may also have a few show stoppers on display that are priced at full CV.

Often these show stoppers are actually part of the dealer's personal collection and he or she actually doesn't want to sell the items. They are just there to impress customers with the depth of the inventory.

C. Buyers
If a buyer is a collector, a selling collector may get a higher price but will probably have to sell the collection item by item. A collector who has. a wide range of interests in reality plays dealers off against one another. A buyer with $20 to spend on stamps from any one of half a dozen readily available countries can get more catalog value for the $20 than a collector with a very narrow interest--especially if there are other potential purchasers competing to buy the same material.] I've noticed that virtually all of the buyers of auction lots I've sold have lived in tiny towns-presumably people with no other easy access to a steady supply of stamps. Because the market is the way it is, one collector has gone to the "shotgun" approach to collecting. He buys lots of wholesale lots, and resells just enough to recover his costs and collect the parts he wants. His goal is to have $0 invested in his collection.

1. Psychology
My feeling is that collectors want to feel they got a "deal." The easiest way to feel they get a deal is to get a discount off the catalog price. Many collectors also want instant gratification. The Internet doesn't give that, but retail shops, bourses, and live auctions do.

II. CATALOG PRICES

Scott catalog values are not literal "retail values." They should be used as an approximate indicator of relative value between different items. The catalog only serves to place an item in relative magnitude of worth. The dealer uses the catalog as a reference to help him/her make sure he doesn't pay too much for an item and also sells it for its maximum benefit.

The last part doesn't necessarily mean top dollar. The catalog value is a guide, not an absolute. It is the price a buyer will pay an informed seller when the buyer must have the particular stamp immediately. Three things determine stamp value (covers, etc, too): rarity, condition and popularity/desirability/fame.

It doesn't pay to put too fine a point on the question of price when the asking price is a few dollars. Save haggling for buying a White Plains souvenir sheet or other large item. Dealers will be happier to see you coming and will respect your knowledge and sense of worth much more.

Prices can legitimately vary from one dealer to another. It depends on what the dealer paid for a stamp, how quickly he wants to sell it, what his overhead costs are, whether he or she specializes in that area and therefore puts more effort into organizing his stock and looking for unusual items, etc. In fact, most of the widely used general and specialized catalogs are not retail price lists either, and usually overstate the actual values.

The only exceptions are actual dealers' price lists, such as H. E. Harris and Brookman, and even these prices tend to be somewhat higher than those you can find by shopping carefully, because those companies have high overhead costs (for producing their catalogs, for one thing!). If half Scott is about right for easy sales through low-overhead sales circuits, then full Scott is about right for high overhead storefront stamp shops in big cities, and somewhere in between is about right for bourse purchases. Note that companies that advertise heavily in the mass media have to sell at about double Scott to make money.

A. Condition
Book value is an interesting concept. Scott claims that it is the average retail price for a stamp in VF condition. However, it's customary to get stamps for less than catalog, especially if you are willing to accept F-VF condition. (Note most of the dealer ads offering good discounts from Scott specify F-VF.) Also, when buying collections, it's expected to get the stamps at a discount.

What has really been an eye-opener is comparing people's written descriptions to the scans of the stamps. An incredibly high proportion of the stamps described as VF or even VF+ are mis-centered or have perfs missing. One collector reports having seen several US stamps with what he would consider to be major defects described as VF and sell for above 30% of catalog. These are stamps he'd describe as space fillers and expect to buy for 5% or less.

Another collector comments that he is beginning to think that this whole condition "thing" is simply not important to a large number of collectors. They seem to want to fill the spaces in their albums, and are happy with a "good-enough" copy. It boils down to condition and true scarcity. If you want it, and are willing to pay the price, then it's worth it. As to dealers putting stamps into APS sales circuits at 50% of Scott's, a collector remarks that they aren't at the same grade that Scott values, which is VF, with no faults.

Key comment from one collector: I don't care about the condition of the stamp if it's "good enough" for me; I don't care about the dealers label. I don't want damage, I don't want to see repairs. Early issues weren't always centered properly, and I'm not going to go nuts searching for the perfect copy."

B. Changes since the mid-1980s
In 1989(?), Scott's dropped prices a whole lot to reflect discounting (buying at or near 50% of Scott's). All that happened was that the discount dropped (to 30%?) off the much lower prices. Scott's couldn't keep dropping prices to keep up with discounting without eventually reaching zero!

Most auctioneers say that the majority of their lots are sold to dealers, for resale to customers at a profit. This point became contentious when Scott switched to retail valuations, because at first Scott relied on auction realizations to calculate those values. Dealers howled that those were their wholesale prices, from which they marked up substantially.

Recently, Scott's has been revaluing stamps by increasing the standard to which individual stamps are held. Sets which recently catalogued for a given price, may still catalog at the same price, but the price may now be for mint-never-hinged, not mint-hinged as it was before. Scott's set a centering standard of F-VF (and, for 1997 of VF) without raising prices much. I don't think Scott's aim was to "devalue" collections, but to make its published prices more correct. Since Scott's can't keep dropping prices forever to match discounts, an alternative is to "raise the bar higher" for a stamp to qualify for the price. If a specific copy of a stamp doesn't match the "raised standard" its value declines and justifies a discount. That approach gives Scott's a chance to have its prices correct and even makes real-world sense.

C. Timeliness
There is also a lack of timeliness of the catalog values. It takes time to compile the market data and print the catalog, some values may be outdated. A good example is Hong Kong, whose popularity is skyrocketing, where catalog values are useless even day to day.

D. Discounts
Good US material is fairly predictably going for about 30% of Scott, with cheaper items bringing a higher percentage and more expensive ones bringing a lower percentage. Why are the more expensive items going at a lower percentage of catalog? One guess is that the average collector with $200 to spend would rather fill in 20 "easy" gaps in the collections at $10 each than one really difficult gap for $200.

In response to a question on a vaguely related topic, a seller recently commented that he used 70% of Scott's as a real-world value for German-area stamps.

If a collection were composed of stamps with significant catalog value, then the price paid would be a function of condition (centering, gum, absence of defects and repairs, etc.) as well as comparative demand. The price could vary from more than catalog, if the stamps were marvelous, to 10-20% of catalog if there were lots of problems with the stamps or the country was not one the dealer would expect to be able to resell in a reasonable amount of time.

III. MY CONCLUSIONS