Scalping or Line-sitting: The Role of Speculators

Abstract

Speculative behaviors have burgeoned in various business settings whereby it is costly for consumers to purchase directly from sellers. This paper examines the values of two typical speculative behaviors, scalping and line-sitting, against a backdrop of markets with resale. We establish a two-stage model in which a monopolist seller sells an item (product or service) to consumers in the first stage, and the item can be traded on a resale platform in the second stage. Speculators have no interests in consumption but incur lower costs in purchasing and reselling processes than consumers. In the scalping model, they buy the item first and resell it later to make profits. In the line-sitting model, they earn incomes by serving as surrogates of consumers in purchasing. We first find whether the two phenomena emerge critically depends on the value of consumers’ entry cost. Our main results indicate that both speculative behaviors can bring benefits to the seller and resale platform by a demand expansion effect, although through different mechanisms. Under scalping, the entry of speculators as additional buyers always boosts demand in both stages, and achieves a win-win outcome for the seller and platform, although less consumers remain in the market and the resale price decreases. Under line-sitting, demand is enlarged and profits rise in both stages, only when consumers find purchasing directly more time- and money-consuming, because they need to pay an extra service fee to speculators. Moreover, the consumer population gets better off from the two speculative behaviors when their entry cost is relatively high. When both models emerge, scalping may be preferable to line-sitting for the seller, resale platform and consumers, if the cost advantage of speculators in resale transactions is more evident.

Keywords

Speculative behavior / scalping / line-sitting / strategic behavior / entry cost

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