Legal Definitions - scalper

A scalper refers to an individual or entity that profits by exploiting price differences or market inefficiencies, often by buying something at a lower price and reselling it at a significantly higher one. The term applies in several distinct contexts:

• Resale of Goods or Services: This is the most common understanding of a scalper. It describes someone who purchases items, especially those in high demand or limited supply (like tickets, collectibles, or electronics), at their original retail price and then resells them for a substantial profit.

  • Example: A highly anticipated concert tour announces ticket sales, which sell out within minutes. An individual uses automated bots to buy hundreds of tickets at face value. They then list these tickets on secondary ticketing websites for three to four times the original price, capitalizing on the immense fan demand and limited availability.

    Explanation: This illustrates a scalper buying a high-demand item (concert tickets) at its original price and reselling it at a significantly inflated price to eager consumers.

• Investment Advisory Practices: In the financial sector, a scalper can refer to an investment advisor who buys a security (like stocks or bonds) for their personal account *before* recommending that same security to their clients. This practice creates a conflict of interest, as the advisor stands to benefit from the price increase that might result from their clients' subsequent purchases.

  • Example: An investment analyst at a brokerage firm discovers compelling research suggesting a small pharmaceutical company's stock is undervalued and poised for significant growth. Before publishing their "buy" recommendation to the firm's clients, the analyst personally purchases a large block of shares in the pharmaceutical company, anticipating that the client demand generated by their recommendation will drive up the stock price, allowing them to sell their personal holdings for a profit.

    Explanation: Here, the analyst acts as a scalper by using privileged information to personally invest before advising clients, potentially profiting from the market movement caused by their own recommendations.

• Market-Making Practices: In specialized financial or commodity markets, a scalper can also be a market maker or dealer who applies an excessive markup when selling an asset or an excessive markdown when buying an asset. This often occurs in markets with limited competition or where the market maker has significant control over pricing due to their position.

  • Example: A dealer specializing in rare historical documents operates in a niche market where they are one of only a few active buyers and sellers. When a private collector needs to quickly sell a valuable manuscript, the dealer offers a price significantly below its true market value (an excessive markdown). Later, when another collector seeks to acquire a similar manuscript, the dealer sells it at a price far exceeding its fair market value (an excessive markup), leveraging their market position and the scarcity of the item.

    Explanation: This example demonstrates a market maker acting as a scalper by imposing unfair and excessive profit margins (both buying low and selling high) due to their dominant position in a specialized market.