The Case for ReservationHop: Why the Scalping Site Isn't As Loathsome As It Seems

Ian Eck and Scott Lucas | July 9, 2014 | Story Tech World

Depending on whom you ask, ReservationHop is the either the harbinger of the fall of Western Civilization, or just an annoying waste of time and money. The web app, which drummed up quite an online controversy recently by allowing users to scalp for dinner reservations, sure looks like the latest and greatest instance of the tech world exploiting customers for their own profit. (Previous object of hate: ParkingMonkey.) But is it as bad as all that? Probably not.

Here's the thing: ReservationHop isn't all that different from the secondary market for concert tickets. And while we might find Beyonce ticket scalpers despicable, they serve a real economic purpose—allowing price to rise to the equilibrium of supply and demand. Sure, it's no fun to pay more than face value, but that doesn't mean the scalper doesn't provide a service.

That's more or less what the app's creator, Brian Mayer, wrote in his business's defense recently. Though he concedes that "everywhere you look cherished public resources are being claimed by startups, whether it’s Google laying claim to bus stops or parking apps laying claim to, well parking spaces." However, he argues that restaurant reservations aren't public resources to start with: "Reservations take time and planning to make and the restaurant assumes an opportunity cost from booking them." He then goes to claim that a market for bookings harms nobody. "The consumer has made a choice, the reservation stands, the restaurant gets a table filled as planned, and I have made money for providing the service. That seems perfectly ethical to me," he writes.

Though Mayer's right to point out the key difference between a public good like street parking and a private one like a restaurant table, he minimizes a key element of ReservationHop's business model: Fraud. After all, he's booking the tables under fake names. Shouldn't that be enough for the app to earn censure? Sure, allowing a market for someone who decides to go to the ballet instead of AQ on Friday night doesn't seem ethically problematic. But a market in which scalpers snap up a block of availabilities with no intention of using them (which is what the app allows) is at best a futures market and at worst an enabler of fraud that ends up costing consumers more for the same outcomes.

But there's also, in a counter-intuitive way, a case to be made for a service like this one—even with fraud in play. Consider the secondary market for concert tickets, which are often priced far below what they could be given demand, leading to secondary markets like StubHub in which ticket prices rise to an equilibrium. As the New York Times pointed out recently, "few products are so under-priced that an entire subsidiary industry exists to take advantage of the discrepancy [between price and demand." If a musician, like Bruce Springsteen, for instance, sharply undercharges for tickets relative to demand, the shut out buyers will turn to a secondary market. "[By] leaving money on the table, Springsteen and his ilk might be doing their fans an inadvertent disservice [...] and others have angrily denounced scalping at their shows, but their low prices are guaranteeing the very existence of that secondary market." As goes for Bruce, so goes for Spruce.

The same dynamics for rock concerts apply to rock-star restaurants: After all, the upfront cost of a ticket is zero. The pressure for a secondary market, in this case, was already there, but it couldn’t find an easy outlet. It's not like there's a central place like a stadium near which scalpers can gather. ReservationHop and similar apps are merely providing that spot in a virtual form. Does that hurt restaurants? No more than a secondary market for tickets hurts Springsteen. Stanford research scholar Pai-Ling Yin, who specializes in studying the mobile app market, doesn't think so either. "Restaurants could use something like this to mitigate the cost of people not showing up. Already, some restaurants charge customers who don’t make their reservation. That’s where ReservationHop, if done correctly, could positively impact both consumers and restaurants," Yin tells us.

But even if the economics pencil out, isn't there a moral case against profiteering like this? Indeed, it seems unsavory to allow people to pay to cut in line. That criticism, which many critics made online, is a version of what Harvard political theorist Michael Sandel calls "the moral limits of markets." That is to say, there is a class of goods that we ought to be made available on a non-monetary basis. (You know, like public parking spots.) As Sandel argues, "Some of the good things in life are degraded if turned into commodities." That logic applies clearly to political goods like citizenship or access to a court of law. But does paying for a hot table at NoPa on a Friday night really compare to something like paying your way out of a jail sentence? That seems like a stretch.

So, to review: The app doesn't really hurt the restaurants and it doesn't violate a great moral norm. Sure, it shifts the customers from those who can afford a meal at Park Tavern to those who can afford a meal at Park Tavern plus five bucks for the reservation, but is that the most pressing kind of money-fueled displacement that San Francisco should be worried about right now?

It's not like ReservationHop is curing cancer. But is it deserving of the tar-and-feathering it received? No. Not all annoyances are crimes. And, if nothing else, ReservationHop has performed a real service: It makes Yo look good by comparison.

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