Defending The Reservation Scalper

On Sept. 9, the Orlando Sentinel reported that a new company called DiS Dining Agent is helping people obtain reservations at restaurants in Disney World. But unlike other such services, it does this by making registrations under false names and transferring them to customers for a price, currently around $15. The company also offers to cancel its reservation and immediately notify the customer for a fee between $6 and $10 so that a customer can quickly call the restaurant to claim the newly vacant time slot. A company in San Francisco called ReservationHop also operates in this manner.

Of course, such methods have their detractors. Anna Skamarakas, a Disney Parks Mom panelist, tells the Sentinel, “It just infuriates me… They are doing something to circumnavigate the system, which isn’t fair to the rest of us who are trying to play by the rules.” Disney says that it is “aware of the site” and is “currently reviewing the situation.” Other criticisms are that reservation scalpers create artificial scarcity and needlessly raise prices. But let us consider an alternative view based on Walter Block’s defense of ticket scalpers in Defending the Undefendable. This will show why such criticisms are unfounded, as well as how reservation scalpers are actually performing a beneficial market function.

First, we should point out the inconsistency of the outrage of those who oppose reservation scalpers. The grocer also buys large amounts of finite, potentially scarce products and sells them for a profit. So does the hardware store owner, the jeweler, and so on. But no one seems to be outraged by the idea of a business selling food, tools, or jewelry in the event that supplies are low and the particular item that a customer wants is nowhere to be found. This sort of logical inconsistency cannot be rationally advanced in argument.

Second, there is the fact that the very nature of restaurant reservations makes scalping possible and profitable. Any reservation price above the market clearing price will result in empty seats, which Disney would prefer to avoid. Any price below the market clearing price will invite scalping, and trying to calculate the exact market clearing price in advance is impossible. As restaurant owners would prefer to err on the low side of the market clearing price, there tend to be more people demanding seats than there are seats available. This leads to rising prices, which correct the imbalance. The act of scalping is simply a market force acting to correct imbalances in supply and demand.

Third, the reservation scalper acts as a risk mitigator on behalf of both a restaurant’s customers and owners. If the scalper makes a reservation and fails to sell it to a customer, then the scalper loses the entire cost of the reservation and the restaurant owner loses potential secondary sales, such as alcoholic beverages and extra side dishes. (Note: there is no alcohol served inside the Magic Kingdom, but other areas of the Walt Disney World Resort do have restaurants that serve alcohol.) If the scalper makes a reservation and sells it to a customer, then the scalper makes a small profit and the restaurant gets customers who might not otherwise find a reservation. The scalper is thus strongly incentivized to connect restaurateurs with customers who want their services.

Some people will argue that scalpers are responsible for higher reservation prices and lower availability, but this is merely a result of arithmetic, and would happen with or without dedicated scalpers speculating on reservations. Suppose, for an example similar to the case at hand, that restaurant reservations are selling for an average of about $50, there are 20,000 reservations for sale every day, and 25,000 people want a reservation. To avoid distributing reservations without price rationing, which would result in reservations being made available in an arbitrary and discriminatory manner, prices must rise to a level where only 20,000 people still want them. This level may be around $65 in this case. How this $15 per reservation increase is distributed is what will vary from case to case.

Finally, there is the argument that reservation scalping benefits the rich at the expense of the poor. The opposite tends to be true. For poorer people, scalping is an easy way to make a large return on a relatively small investment. For richer people, paying a scalper a higher price is the overt cost, but there is also the hidden cost of not having to spend extra time trying to make a reservation.

In conclusion, it is clear that the reservation scalpers are not only not harming anyone, but are fulfilling a market role that helps everyone involved.

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