THE BLOG
02/19/2008 04:14 pm ET Updated May 25, 2011

There's Always Arbitrage

It all started innocently enough, about a month ago, with a question from a friend: "Want to play with my iPhone?" I took it in my hands, gazed into its scratch-resistant veneer, traced its face with the tips of my fingers; a germ of passion sprouted in the materialistic side of my heart. I gave the slim gizmo back, knowing that I'd find some way to make it mine. I never imagined the murky underworld I'd discover in the process.

As a frugal journalist, I figured the best plan would be to troll eBay for a bargain, thinking I'd have no trouble finding a lonely outmoded 4GB version in my price range. But I quickly discovered that all the old models were long gone, and the newest ones were selling at a premium of nearly 50%. My dreams of easily acquiring the technological object of my affection gave way to the desire to uncover the cause of this arbitrage (defined by Barron's Dictionary of Finance and Investment Terms as "profiting from differences in price when the same security, currency is traded on two or more markets") and write an article about it.

I brainstormed some possible explanations for the eBay markup. First, there was the issue of exchange rates. The iPhone cost $399 in American stores, but went for $399 Euros across the pond. That's close to $600 in dollar terms, what with a depleted greenback trading near $1.50 per Euro. So it behooved intrepid Europeans to import iPhones from the U.S., either for personal use or to sell. Second, although iPhones were available through carriers in the U.S., France, England and Germany, I'd heard the reports that people were unlocking them to use with cell companies all over the planet. Since there were no Apple Stores in many of these places, buyers were looking to the internet. And all of this proved that, even amidst the subprime mortgage crisis, the rise of Mike Huckabee and the downfall of Britney Spears, America still had something sexy to offer the rest of the world.

It seemed like plenty substance for an article; all I needed was somebody to give me a couple juicy anecdotes and corroborate my claims. So Googled like there was to tomorrow, I scoured international tech message boards, I responded to European classified ads. No dice. I emailed every single person selling an iPhone on eBay. Nada. I spoke with a friend from college who said her father was a wholesaler who gave his employees $450 for every $400 iPhone they brought to him. Would he talk to me for my article? Of course not! I even went to the Apple Store and begged one of the Geniuses to tell me tales of the international iPhone smugglers who'd visited their store. All I received was a smug smile and a canned response: "We have customers from all over the world."

I began to obsess. I had identified a prominent arbitrage opportunity that was being exploited by hordes of hustlers around the globe, found a host of adherents to the rituals of this shadowy cabal, yet was unable to make any of them crack. It was almost as if they sensed that I was on to them, knew that exposure could earn them a swift slap from Adam Smith's invisible hand -- or Steve Jobs' much more tangible corporate fist -- and were conspiring to stonewall my efforts.

Distraught, I decided to take drastic measures. I went back to the Apple Store, bought an iPhone, and put it on eBay myself. I figured I might be able to smoke the conspirators out of their holes. Sure enough, within hours of posting the item, I'd received messages from buyers in Denmark, France, Greece, Russia, Singapore and Saudi Arabia. A Muscovite asked if I'd be willing to sell multiple phones outside the regulated confines of eBay. An Athenian asked if I could ship to a U.S. address that he was still "setting up." I began to get giddy with expectation. I'd wait till I sold the phone (maintaining my journalistic ethics by not asking the winning bidder for a quote), then hit up all the losers for help with my article. Surely my newfound eastern-European buddies would be willing to aid me.

I awoke ecstatic the next day, swaggered out of bed, and began to ponder the possibilities. Perhaps some daring Dutchman would tell me how he smuggled dozens of iPhones to Europe inside a giant earthenware jug. Or maybe some Tunisian taxidermist would cop to having the devices shipped inside a stuffed alligator. I dreamily made my morning news junkie rounds.

Then, disaster. A link at the top of my Gmail inbox informed me that an investigative report on the iPhone gray market had just hit the mainstream news media -- the first drop of an eventual deluge of stories on the topic. Crushed, I trudged over to a favorite haunt and sat alone by the window with a cup of bitter black coffee (it was the first time in my fledgling career that I'd been scooped; I figured this was what writers were supposed to do in such situations).

Later that day, I wearily clicked my way back to eBay to check on my auction -- and found a pleasant surprise. My iPhone had sold for $560, plus shipping. I'd made $130 for an hour's work. The more I thought about it, the more I realized that this wasn't such a bad outcome after all. I hadn't been able to crack the iPhone cabal, but at least I'd arrived at a conclusion that should come as comfort to all journalists: if this writing thing doesn't work out, there's always arbitrage.