That doesn't follow. Even if the bids sum to more than a hundred, you have put up the other fraction of $10 for all of those n contracts. With a lot of the bids very low, then in order to cover all possibilities, you have to put up over $9 on many, and so it looks like you will have to front more than $10*(n-1), making it a loss from the beginning.
Aren't you just restating the margin problem? The reason this strategy is impractical to implement is that you have to put up a lot of money to cover the payout on every contract you sell, even though at most one of them will pay out. The fact that Intrade don't pay interest on deposits makes that a poor use of your money but you will get most of it back once the nominee is announced. You also get to keep the (100 + n) you got from selling the contracts and only pay out at most 100 leaving you with a profit of n.
Unless I'm misunderstanding something about the way Intrade works you will make a profit, but to do so you will have to tie up a relatively large amount of funds in a non-interest-paying Intrade account for the duration of the bets. With interest rates so low at the moment that's not such an issue as it might be under more normal interest rates.
I've noticed something very curious on Intrade markets for 2012 Republican Presidential Nominee - Ron Paul gets 3.5% of getting a nomination - a value that's clearly (and spare me EMH here) wishful thinking of Ron Paul supporters more than any genuine estimate.
And this brings me to a question - if prediction markets overestimate chance of winning of some rare case, how can I profit from that? Naively if I know true chance is 1%, I win $3.5 99% of the time, and lose $97.5 1% of the time, for expected payoff of $2.5. But my maximum loss is 39x higher than my expected profit, and I won't be getting any money out of it for three more years.
I'd need to bet significant amount to earn any money out of it, and that would require accepting 39x as high maximum loss. No reasonably prediction market would accept this kind of leverage without some collateral, nor could I get any reasonable loan for it at rates that would make this arbitrage profitable.
The only way I can think of would be convincing someone with plenty of money that I'm right, and have him provide me with collateral for some (probably very high) portion of the payoff. But if results depend on my ability to convince rich people, that's not prediction market! None of this is a problem for people trying to artificially pump estimates for Ron Paul - they'll just take the loss, and write it off as marketing expense.
None of these problems occur if some position is vastly overestimated, like 60% estimate if I know true value to be 40% - this would be a cheap bet - maximum loss of $40 for expected profit of $20, and people who want to pump it need to take about as much risk as people who want to bring it back to the true value, not a lot more.
I'm confused. Is there some nice way to arbitrage this, or is this an inherent weakness of prediction markets and we should only trust positions they pick as leaders, not chances of their long tail?