“Scalpers: When “How Many” is the Question” by Ms. Chenxi Liao
Ms. Chenxi Liao
Ph.D. candidate in Marketing
The University of Texas at Dallas
Naveen Jindal School of Management
Scalping has long existed in many markets. Scalpers purchase the products with limited supply for reselling them later at inflated prices. Though firms often impose restrictions on scalping, we rarely observe actions that completely eliminate scalpers. This paper explains why and how an intermediate level of restrictions on scalping can be optimal for the firm purely from the perspective of the firm's profitability. I consider a firm with limited capacity. Consumers decide between purchasing the product before resolving the uncertainty, and waiting at the risk of the price increasing and the product selling out. I find that the firm's profitability can indeed be maximized at an intermediate level of scalping. This result is an outcome of two opposing effects of scalping. On the one hand, the scalpers' higher flexibility in setting the price decreases consumers' expected payoff of waiting, making them more eager to pay a high price right away. On the other hand, the competition between the scalpers and the firm can decrease the firm's equilibrium price. This result provides an explanation for the firms' seemingly contradictory practices: they do impose some but not complete restrictions on scalping.