Dec 20, 2018 in Economics

Should Scalping Be Legalized?

Current paper is devoted to the economic analysis of scalping. It is a controversial activity, and economists from different schools treat it differently (Leslie, & Sorensen, 2008). Thesis statement of this paper is the following. Scalping performs valuable economic function as it facilitates the market equilibrating process and supports market dynamics. Therefore, all restrictions regulating the operation of scalpers should be removed. This economic activity should be legalized as its economic role allows allocating scarce resources in a more efficient way.

In order to support the outlined thesis statement, the following arguments may be presented. The economic nature of scalping should be outlined. The scalper is participating in buying tickets not because of his/her personal subjective preferences but due to his/her anticipation of future dynamics of prices (Harrington, 2009). In other words, the scalper believes that the current market price is below the equilibrium price. Therefore, he/she buys tickets in order to re-sell them in the future under higher prices.

Scalping increases overall economic efficiency with the help of facilitating adaptation process and reaching the state of final equilibrium. If the scalper is correct, he/she is able to generate profits. Although some experts claim that it is not a productive activity, there are evidences to the contrary. In order to earn profits, the scalper should buy tickets and then re-sell them. Thus, the market equilibrating process becomes more efficient and professionally organized. Moreover, the elasticity of demand tends to increase, and the general equilibrium may be reached with a shorter time lag than before.

The scalper can generate profits only if he/she correctly anticipates the dynamics of market prices. Thus, the prices at the moment of re-selling tickets should be higher than at the moment of original buying them. However, it is not always the case. There are a large variety of situations when the scalper cannot realize this strategy. The first possible situation is the unexpected decline in demand. If this decline occurs, the new market price will be lower than the expected one. The second possible situation is when the scalper misunderstands the market conditions. For example, he/she knows from his/her experience that the market price for a given sport event typically increases. He/she buys tickets based on this belief. However, in a specific case, this situation does not occur because the initial price has been equal (or even above) the equilibrium price. Thus, the scalper always faces market uncertainty.

If the scalper’s anticipations are incorrect, he/she is not able to generate any profits but ends up suffering losses. In order to minimize them, he/she should sell the existing tickets under the new market prices (even if this price is lower than the initial price). Thus, the scalper can earn profits and suffer losses in any given market situation. The final outcome of his/her operations cannot be predicted with 100% certainty (Halberg, n.d.). The effectiveness or ineffectiveness of his/her operations will be determined as a result of voluntary transactions of different individuals in the market. The scalper’s profits may also be understood as the remuneration for uncertainty bearing.

All government restrictions regulating the operations of scalpers should be removed. Such regulations only create additional problems. First of all, they negatively affect the incentives to participate in scalping as scalpers face additional restrictions and prohibition. It means that the elasticity of demand will comparatively decrease, and the market adaptation mechanism will be slower than before (Krump, 2008). Moreover, government regulations will decrease the overall economic benefits that scalping brings about. Therefore, some market transactions will not be realized because the new risks are too high. The actual market price for consumers will be higher than before (even if the government tries to establish the price below the equilibrium level). It will happen because fewer scalpers will participate in such an activity, and the market supply of scalped tickets will be lower.

Thus, scalpers perform valuable social and economic functions. Their profits may also be attributed to additional uncertainty bearing, and all government regulations in this sphere should be removed. Scalping should be free and legal. It will allow maximizing social welfare.

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