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Ticket Scalping

December 2, 2010, 9:11 am

I have never really understand all the hatred directed at ticket scalpers.  They only make money because the original sellers of a scarce resource  (e.g. tickets to a concert) under-price their product.  Scalpers live on the difference between the list price of the ticket and the true market clearing price.  So they buy the tickets when they first come out for $80 and resell them for, say, $200.

Scalpers will never go away.  Even if there were not a mispricing problem, there is always going to be a secondary market for date/time specific products that are non-refundable  (just think how great it would be if there were a secondary market for airline tickets you could no longer use, though alas TSA and airline rules pretty much make this impossible).

But scalping would be a lot, lot smaller if concerts just sold the tickets originally at the market clearing price, or held some sort of auction for them.  Then the original price would be $200, not $80, and the margin for flipping the tickets goes away.

Which then presents us this irony for those consumers who whine about scalped ticket prices.  The fact is the higher market clearing price never goes away, even if it is achieved in some sort of black market.  In fact, what eliminating scalping really means is that instead of some people paying $80 and some paying a higher price, everybody pays a higher price.  There is no mystical low price, larger supply solution to the problem.  In fact, the lower price with scalping model really is a gift from bands and concert promoters -- the scalping margin really could be theirs if they wanted it.

I am reminded of all this by this notice to fans posted by the White Stripes' Jack White and linked by TJIC.  The subject in question is limited edition vinyl but the discussion is exactly similar.  White took some small steps as publisher to capture some of the scalper's margin discussed above, and apparently some fans freaked.

Tags: , , ,
Category: Economics
  • DrTorch

    Scalpers create the scarcity that they profit from. They buy up large blocks of tickets early. So there is a legitimate complaint.

    Another approach: You get in line for the concert the day of. Then you simply pay as you enter. No scalping b/c you can't enter the show multiple times. Oh yeah, you don't worry about tickets you couldn't use, another problem solved. They do this for movies, and you don't hear many complaints about scalpers. (High prices? Yeah.)

    But concert venues don't like it b/c they don't get their money ahead of time.

    It would create a market for line-sitters...but that's more sensible since it's your time that's for sale. And it's negotiable, you can guage how valuable that is to you.

  • Ernie

    The problem with scalpers is they buy and hold blocks of seats to create a market.I have never heard anyone complain about someone reselling their own tickets. I know someone who has over 20 season tickets to a Nascar race and would resell all of them. Of course he eats those tickets these days.

  • N

    Scalpers don't create the (all of) scarcity that they profit from, concert and sports tickets are limited commodities. You can't sell 60,000 tickets to a 50,000 seat venue. If a scalper bought every single ticket to the Super Bowl and sold them at twice face value, then twice face value is the market price. The venue could have claimed it, but didn't.

    Certainly, there is some play here, and a scalper could create additional scarcity. But that is why the post says "scalping would be a lot smaller," not non-existent. Lots of people would pay the stadium what they pay scalpers now. If the stadium charged that amount, scalpers would have to charge more then most people would pay.

  • http://theunbrokenwindow.com wintercow20

    The irony of course is that the consumers are the reasons for the very prices and outcomes they bemoan. I laugh, for example, when I walk into my bagel store and the owner has to put up a sign that says, "Unfortunately, my flour distributor raised my costs, so we have to raise your bagel costs." It's so much easier on the ears and eyes to read that then, "all you fools want more bagels at current prices, and the supply of wheat is not perfectly elastic in the short run."

  • Abtin Forouzandeh

    The Jack White link is broken.

  • dan

    It's a risk/reward situation. In the case of a touring musician, typically they are paid a percentage of the house, subject to a minimum payment. The promoter then has to be able to guarantee that he will sell enough tickets to cover the minimum, otherwise he's out of pocket for the difference. (or he can cancel, but that also usually involves a surrender fee to the artist). The faster he can seel out the house at a price still high enough to cover the minimum plus his costs, the less risk he will face. The difference between the scalper's price of the ticket and the list price then, is the risk premium paid by the promoter to guarantee that the house will sell out.

    For a scalper to try to create scarcity by buying up blocks of ticets is another risk play. If the scalper buys 100 tickets to sell only 10, he has to recieve a 10 times multiple on the list price to make it worth his while. Again he's being rewarded (or not) for escentially purchasing the risk that the house will not sell out from the promoter. It's failed attemts at this that result in the so-called miracle tickets sometimes available at venues.

    Here the purchaser is taking on the risk of not being able to see the show (if all tickets sell at scalper's price) in exchange for the opportunity to buy at below face value if the scalper needs to sell out to try to minimize his losses.

    Going exclusively "pay at the door" would eliminate the ability to scalp, but it would also put the risk of unsold seats back on the promoter and artist, which is the situation that they're trying to avoid.

  • John A

    life, liberty, property.

    if scalping doesn't infringe on any of the above, then complaints are to be considered as nothing else than unadulterated whining.

    anything artificial (e.g. rationing, eliminating re-sales, tariffs, etc.) will always lower supply and increase price.

    look for the root cause of a problem. there are always ten thousand (slightly exaggerated) immediate causes to the single real and root cause.

    ja

  • Cordelia

    "the lower price with scalping model really is a gift from bands and concert promoters — the scalping margin really could be theirs if they wanted it."

    Not really. Scalpers can sell a low number of tickets at relatively high prices; venues have to sell all of the tickets (for a certain type of seat etc.) at the same price, so they compromise on a lower price for all the tickets. Which doesn't mean that scalping is evil, just that tickets as ordinarily sold aren't generally under-priced.