Why Online Thrifting Feels Like a Gamble (and How Economics Explains It!)

 Am I the only one that is fed up with getting scammed on secondhand clothing platforms? The other day I bought a jacket off Vinted, only to receive a crisp packet in the mail. As a student that was my last £30 (not my wisest decision, I admit) and now I'm left questioning whether I can ever trust these platforms again. These days authentic finds are becoming rarer, buried beneath an overwhelming flood of low-quality listings and outright scams! That jacket was truly a diamond in the rough. It's a shame didn't actually receive it.

 

Fortunately (or unfortunately), I'm not the only one who has fallen victim to these scams.

The online second-hand clothing market suffers from what economists call an adverse selection problem, where sellers have incentive to list low quality products, such as stained, ripped clothing, or even straight up scams (note the crisp packet) rather than high quality goods, such as the vintage Carhartt jeans you’ve had in your shopping basket for the last 3 months. For every online secondhand purchase, buyers feel as if they are in a game of Russian roulette - will you receive your desired item, or will be left disappointed?

This problem occurs due to asymmetric information, where one party, the sellers, has greater knowledge of the product than the other party, the buyers. Whilst you may think you have found the perfect pair of baggy jeans from websites such as Vinted or Depop, do you really know what you are buying when you can’t physically hold it and try it on? Even if you’re lucky enough to see a selection of photos, you can only see it through your iPhone screen. Sellers are incentivised to simply flood the market with low quality products or even scams as it wouldn't be differentiable from genuine worthwhile products, leading to a wine-stained jumper priced 3 times its actual worth.

When Buyers Fear the Unknown: Threadflip’s Trust Issue

Threadflip is a prime example of how asymmetric information can doom a marketplace. The online secondhand fashion site had over 1.5 million users at its peak and differentiated themselves by handling photography, pricing and shipping in order for a cut of the sale. However, despite the promise of providing a seamless concierge service, by 2016, the marketplace shut down.

So, what went wrong?

The reason for the downfall of Threadflip can be explained by theories discussed by George Akerlof in his 1970 paper, “The Market For Lemons”.

This paper introduced the concept of adverse selection which concerned information asymmetry. The key example used to explain this was the second-hand car market. He referred to low- and high-quality used cars as lemons and peaches respectively, narrowing down on how buyers are unable to distinguish between the two.

 

The graphs (doodled expertly by our team) model how Akerlof’s theory works in real life. We won’t bore you with too much detail, but a simple explanation goes as follows:

When sellers have more information about their car quality, “a lemon’s problem” arises in which low quality cars drive the high-quality ones out of the market.

·         In Diagram A, buyers originally demand high-quality cars (DH), but as they realise they can't always tell good cars from bad, they lower their expectations. This reduces their willingness to pay, shifting demand down to DM.

·         In Diagram B, the opposite happens for low-quality cars. Since buyers can't always tell they're getting a bad deal, demand for these cars increases in the first instance, from DL to DM.

Over time, buyers become even more skeptical, further reducing demand for good cars (DL), eventually driving them out of the market altogether as owners become reluctant to sell their vehicles at £5000, therefore leading to 0 high quality cars sold.

This aspect of driving sellers out the market was a key factor that led to the failure of Threadflip as high quality clothes mean that buyers hesitate to pay premiums due to fear of undisclosed flaws due to asymmetric information. Let's be honest, who wants to spend money on a “barely worn” designer jacket only to discover several tears? The lack of trust creates adverse selection where honest, good quality sellers struggle to compete. Meanwhile low-quality goods flood the market and buyers either lower their standards or leave altogether. The Threadflip market essentially unraveled.

How are Online Marketplaces Fighting Scams and Building Trust?

Fast forward to more recent times, post Threadflip, the big players in the secondhand clothing market with Vinted and Depop boast over 150 million combined registered users worldwide. Why? The reason for their “successful” business model is down to their emphasis on trust and transparency by learning from past failures. These platforms have implemented features that encourage buyer confidence and seller accountability despite the issue of asymmetrical information. These include detailed listing requirements, seller ratings and buyer protection policies. Ebay, a pioneer in the sector, even includes an authentication process that ships sellers’ items to a verification facility prior to delivery.

 

An Inevitable Gamble?

Second-hand fashion marketplaces live and die by trust. However, even billion-dollar companies cannot fully eliminate asymmetric information.

A recent study by Which? reported by The Guardian (2024) revealed that scams remain a huge issue:

·         57% of users reported being scammed on Depop, the highest among second-hand marketplaces.

·         eBay (29%), despite its authentication services, still struggles with fraud.

·         Even Vinted (22%), which prides itself on safety, isn’t immune.

The hard truth is that no matter how many safeguards exist, buyers will always be at a disadvantage when they can’t physically inspect goods before an online purchase. Platforms can reduce risk, but they’ll never kill adverse selection entirely. Our advice on the best defense? If a deal looks too good to be true, it probably is.

Having said this, it will be interesting to see how technology, particularly AI and advanced verification processes shape the future trajectory for online marketplaces.

References:

Austan Goolsbee, Steven Levitt & Chad Syverson (2020) Microeconomics. 3rd edition. Worth Publishers. https://read.kortext.com.

ITV News article:
ITV News (2024) Third of buyers experienced scam on second-hand marketplaces in last two years. Available at: https://www.itv.com/news/2024-05-08/third-of-buyers-experienced-scam-on-second-hand-marketplaces-in-last-two-years.

TechCrunch article:
Constine, J. (2016) RIP Threadflip. TechCrunch. Available at: https://techcrunch.com/2016/01/12/rip-threadflip/.

Business of Apps (2024) Vinted Statistics. Available at: https://www.businessofapps.com/data/vinted-statistics/

Akerlof, G.A. (1970) ‘The market for “lemons”: Quality uncertainty and the market mechanism’, The Quarterly Journal of Economics, 84(3), pp. 488–500. Available at: https://doi.org/10.2307/1879431