Market Power

Ticket Scalping = Evil: It's Not Just a Contemporary View - And a Question

Yesterday I posted about the Wisconsin Badger Herald editorial written by "staff" (affectionately known as "Herald Staff" to those of us employed at MP) who named the names of UW-Madison students who scalped their Rose Bowl tickets.  Herald Staff was especially vitriolic towards the fellow students, saying there was a special place in Hell for them.

But this vitriol is nothing new as a New York Times letter to the editor from 1910 (via Craig Depken) shows.

From a letter to the editor in the Dec. 7, 1910 NYT:

A year or more ago there developed in this "Greatest City of a Great Country" a violent agitation looking to the prohibition by law of speculation in theatre tickets, but our city fathers were evidently unable to find a way out of the difficulty. I am informed that the City of Chicago has recently passed an ordinance compelling all theatre tickets to have the price printed on them, and making it a punishable offense to sell any tickets above this figure. This would seem to be an effectual remedy for the evil.

Why do some consider arbitrage in tickets to be evil?  When I was a student at Mizzou, it was not uncommon to hear stories of students who had won the men's basketball ticket lottery selling their tickets for a few thousand dollars.  I don't recall hearing anyone saying that was evil.  Personally, I thought to myself "lucky bastards."

The basic scarcity problem holds:  resources (and thus goods and services) are scarce relative to the infinity of human wants.  How are goods divied up and who does the divying? 

In a market, it is the people who define the market - buyers and sellers - evaluating prices and other opportunities that do the divying.  The same is true in a market for tickets.  People who buy tickets value the tickets more than the money they give up.  Ticket sellers value the money more than the ticket.  This holds true in all voluntary market exchanges.

But why is the secondary market for tickets to events viewed differently?  Comments are open.

Trent Reznor on the Pricing of Concert Tickets and Scalping

Trent Reznor of Nine Inch Nails gives some insights on ticket pricing and scalping and what his band has done to limit it.  His explanation for why bands don't charge more for their tickets even though they could:  they don't want to come off as being "greedy pricks." 

Via Eric Crampton .

In Defense of Dynamic Ticket Pricing

You might recall that the San Francisco Giants have begun using a system that allows them to alter the prices of their tickets to help increase ticket sales (see here and here), much the way that airlines price their tickets.  They use a system that allows them to alter the price of their tickets to account for changes in weather, etc.

Christian Hassold has a nice defense of such a system.

Dynamic ticket pricing is needed now and it could benefit the market in two ways. First, it would reduce the number of tickets resold on the secondary market because dynamic pricing would reduce profit potential at resale. Second, dynamic pricing could increase ticket sales volume for events where interest was low. It seems plausible that some concerts are under attended because lower quality ticket prices (with fee’s) are not enticing enough. This is probably why Live Nation is putting so much effort into selling lawn seats for $25 with no ticketing fees – that kind of price entices people to buy.

Secondary Ticket Market Conference

Al Roth tells of a conference for, well, scalpers.

He also points to a blog on the economics of ticket pricing by Christian Hassold. 

A Clear Example of a Shortage - Tickets to Michael Jackson's Service

When the price of a good is below its equilibrium price, a shortage ensues.  You think that's the case with tickets to Michael Jackson's memorial service?  Ya, you betcha!

More than half a million fans from around the world applied for 17,500 free tickets to Michael Jackson's public memorial service next week, organizers said on Friday as a massive security operation got underway.

The life and music of the self-proclaimed "king of pop," who died of sudden cardiac arrest last Thursday, will be celebrated on Tuesday at the Staples Center, a basketball arena in downtown Los Angeles.

Officials on Friday unveiled an ambitious online lottery that will allow fans to attend either the televised service at the arena or watch the proceedings on a big screen at the nearby Nokia Theater.

Why not charge for these tickets and give the money to some charity or help settle Mr. Jackson's debts?  It should have been a-priori clear that $0 was too low of a price to charge for tickets to this service.  Somebody is going to profit off of this service and it might as well have been someone closer to Mr. Jackson's camp.

Thoughts on Scalping

A reader emails:

This topic (ticket scalping) has come up among football fans at work and I hear lots of complaining about how unethical scalpers are and how scalping should be illegal.  I protest that “scalping” while much maligned, is a valuable service to the marketplace.  I think that the re-sell price (often 3-5 times retail) scalpers make on tickets is reward for the risk of ending up with unsold tickets by game time. Also, if scalper’s prices were really “too high,” they wouldn’t sell their tickets and would either lose money or lower their prices.

How do you rationalize the existence of scalpers and how do you explain their demonization among the general public?

I think the first paragraph captures what scalping is all about.  It's a speculative activity where people can profit if they guess right, but can also potentially realize a loss if they guess wrong.  There are also other risks as well, like fines in places where scalping is illegal, and any expected return is balanced by a possible loss.

Scalpers benefit society by making tickets available to people who otherwise wouldn't have access to them.  But like anything beneficial, this access comes at a cost: one of those being higher ticket prices.  The question for society is "do the benefits outweigh the costs?"  As the reader implies, when someone buys a ticket from a scalper, both parties are making a rational, optimizing decision.  In other words, it's like most other market exchanges.  So in that sense, yes, scalping is good for society. 

The demonization question is very interesting.  Perhaps the demonization comes from people disliking having to pay more for something when they know that it carried a lower price to someone else.  Maybe there's a sense of entitlement that the posted price is the "true" price. 

Or maybe people feel that speculation activities impose some sort of negative externality on them and are, thus, unfair in some sense.  If scalpers do impose a negative externality on society, then it's not clear that scalping is good overall, theoretically speaking.  My sense is that the negative externalities* aren't all that large.

In any case, a similar demonization was floating around regarding speculation in oil markets this past summer.  But nowadays nobody is demonizing oil speculators because the price of oil has plummeted about 33% from its summer highs.  I don't know this for sure, but I wouldn't be surprised if many oil speculators are taking a bath.

*Addendum:  My original thought was that the perceived externalities imposed by scalpers were akin to someone buying the last loaf of bread on a shelf.  But the analogy is inexact because there will be more bread in the future, while the event is a one-shot deal.  When it's gone, it's gone. 

Update: Kip notes in the comments that it is a question of rationing.

Since the tickets have to be rationed somehow, the burden is on the anti-scalper to explain why some other system of rationing (e.g., who is willing to spend the most time waiting on line; who has the best insider connections, dumb luck of a lottery, etc.) is "superior" -- morally or otherwise -- to a price-based system.

Ticket Scalping in Philly

Story here via Mark Perry.

Why Special Interest Legislation is Often Couched in "Economic Development"

I was looking through my old posts and I came across this one that I wrote awhile back.  It's a bit dated, but still...

In a post on the attempt to legalize ticket scalping in Missouri and the support that legislation has from sports teams in Missouri, Skip Sauer writes:

But I do have a gripe. Why does every piece of special interest legislation have to be rolled out under the label of "economic development"? What garbage! By the time the fat cats and politicians get done with it, "economic development" will be shed of any real meaning.

I realize that Skip's comment was rhetorical, but I'll give a short answer anyway.  By publicly pronouncing their support for various special interest legislation as legislation to promote "economic development," they can costlessly appear to be doing things for the populace at large even though the legislation really is out there to support some special interest.  In other words, it's an easier sell.

Ticket Scalping in Missouri - Now It's Legal

(Cross-posted at the Sports Economist)

In Missouri, ticket scalping at prices above face value is now legal..

And there was some rejoicing (and economic development???).

To wit: Hal Wagner, owner of Ace Sports & Nationwide Tickets at Oak Park Mall, already has opened a location at Independence Center.

“We’ve been waiting for that ridiculous law to be repealed,” said Wagner, whose company buys and resells tickets at prices that exceed face value. “This is a great, great thing for Missourians.”

But ticket scalping was still illegal last weekend when the University of Missouri and the University of Kansas met in Kansas City to determine the Big XII North champion in football.  But you wouldn't have known it had you looked at the vigorous secondary market in tickets around Arrowhead Stadium.

Before the Border War on Saturday night at Arrowhead, there was the Price War in the parking lot.

“Tickets! I got tickets!” a man named Bill yelled as cars crept by him on the way to the MU-KU game. “Two tickets, $600!”

One week before a new Missouri law will kick in legalizing ticket scalping at sporting events, scalpers like Bill, who declined to give his last name, combed their way through the crowd. Tickets with a face value of $30 to $55 sold from $100 to as much as $400.

“This is a day to make money,” he said.

Underpriced tickets create opportunities for scalpers.  As I've written before, event tickets are priced with an eye towards expected demand and are oftentimes set months in advance.  No one can throw anyone under the bus for underpricing this particular event.  Who'd have thought, coming into this game, that MU and KU would have been ranked 4th and 2nd respectively in the BCS ratings with one loss between them and with both schools sporting national championship hopes?  Not I, said the fly.  The Missouri Tigers, with all their returning talent, had not had many Novembers to remember recently.  The Kansas Jayhawks were coming off a 0.500 season in which they were not invited to a bowl. 

The beauty of legalized scalping is that it allows tickets to go to the people who value them the most and it allows more information to be used in the setting of ticket prices.  But the first article notes that scalping today has some new problems.

Missouri Attorney General Jay Nixon recently cracked down on ticket brokers, suing three of them for scalping tickets to an upcoming Hannah Montana concert at the Sprint Center. Nixon later asked for a temporary restraining order against an Illinois broker who was selling tickets to the recent Missouri-Kansas football game at prices well above face value.

“Unfortunately, the elimination of this consumer-protection tool has come at a time when the ability to take unfair advantage of consumers has grown significantly through the Internet,” said Nixon spokesman Scott Holste.

If he's talking about the ability of scalpers to snap up loads of tickets when they first go online, what amounts to butting into a virtual line, that's not the fault of scalping per-se.  You can argue that legalizing scalping increases the benefits from butting-in, but it's not scalping that is the root cause of this problem.  It's the butting-in. 

If you are cooking a turkey and you realize you might burn your hand, you don't throw away the food to keep from getting burned.  You take other precautions to keep from getting burned.  Why ban an activity where people engage in voluntary trade when the problem lies elsewhere? 

Why not ban computers?  Technology has lowered the cost of butting in, so if you make an argument that scalping should be banned because of the butting in, you can make a similar argument about banning computers. 

Of course banning computers is not the optimal solution, but neither is banning the secondary resale of tickets above face value.

New Category: Economics, Ticket Scalping

Since I have written several posts on ticket scalping of late, I have created a new category entitled "Economics, Ticket Scalping" and I have re-tagged my posts on scalping with this new category.