Engadget Is My Go-To Source For Bad Economic Analysis. Today's Lesson: Apparently Items Are More Valuable If You Can't Resell Them

The following from Endadget may be clearer if you translate the British "touts" to the American "scalpers"

Touts are unnecessary middlemen, inflating ticket prices purely to create a cut for themselves. Gig-goers hate them, artists hate them, and the government isn't too keen either. The use of automated online bots to hoover up tickets (that are later listed on resale sites with a mark-up) is set to become a criminal offence thanks to the Digital Economy Act. The government has also implored venues and resale sites to address the ways they might be enabling touts. Sure, we might be lose the stub souvenir, but can we just make digital-only ticketing mandatory and kill all the birds with one stone already?

This view of scalpers as leeching middlemen with no economic value but rather as rent-seekers who merely mark up tickets and pocket the money is unfortunately common.  But they are in fact a perfectly normal functioning of markets.  They perform at least two economic functions

  1.  Events often are mispriced for a variety of reasons.  Sometimes they charge too much, as in the recent McGregor-Mayweather fight, and the arena is half-empty.  The market can't do much to fix this.  But sometimes events are under-priced, and the demand far exceeds the available supply of tickets.  When this happens, some method of rationing must occur.  Back in my day rationing was by who was lucky enough to dial in at the exact right moment or who was willing to camp out all night.  Resale markets, including scalpers, where tickets are resold well above face value are another approach.  Scalpers don't make money taking some sort of middleman fee, they make money buying tickets at face and then taking the risk that they can resell them later at a higher price.  They are not always successful.  I have sold a number of tickets I could no longer use under face to get rid of them, taking a loss.
  2. If you cannot resell a ticket to the person you want for the price you like, you lose some of your property rights in that ticket and it is less valuable to you.  Look at airline tickets, which are all electronic today and cannot be resold or transferred.  Are you better off as a consumer not having a secondary market for airline tickets?  Do you really like tickets that are use-them-or-lose-them propositions?  The contention in this article that consumers are better off if their concert tickets worked more like airline tickets is simply nonsense.  Scalpers increase our consumer sovereignty.

It should be noted that a digital ticket does not automatically mean loss of property rights in that ticket.  I bought Dallas Cowboys playoff tickets and Hamilton tickets on a secondary market and got them transferred to me electronically.  The Ticketmaster electronic app, at least currently, allows you to transfer the ticket to someone else and so digital ticketing platforms don't have to mean scalpers go away -- one could easily imagine two guys in a parking lot can still transact in tickets from their cell phones.  But the danger, of course, is that unlike with paper tickets this right of resale can be taken away any time by simply blocking the transfer function.  The article does not make this clear but I assume they are promoting a platform where once you buy the ticket you can only resell it back via the original seller (if at all), or else the entire article would be complete nonsense (always a possibility on engadget).

Artists and producers are complete hypocrites on this issue.  They are jealous because they would like to charge what the market could bear for their tickets but fear fan backlash if they do.  So they keep prices low so they can claim to be the fan's friend, but with a catch -- they hold back a ton of inventory in the hottest shows and do not offer that to the public at the published low price.  They sell this inventory at high prices to sponsors and other special groups or even sell it themselves at high market rates on the same 3rd party resale sites they publicly criticize.   What these folks really want is for there only to be secondary markets that they control. They don't want competition from third parties, and this lack of competition is only going to be worse for the consumer.  Think of it this way -- what if by law you could only resell your car to the dealer you bought it from.  Would you get as good of a price.  Hah!

 

  • Mike Powers

    "Artists and producers...are
    jealous because they would like to charge what the market could bear for
    their tickets but fear fan backlash if they do."

    Welp

    Going by your Pure Fucking Market Orthodoxy, if they sold the tickets for some price then that was the price they were willing to accept and it doesn't matter whether they might have wanted a higher price. "jealousy" doesn't enter into it.

    Meaning, they're willing to accept less money than they might otherwise have gotten--that is, they're willing to pay an opportunity cost--to serve some other goal.

    So if they intentionally underprice their tickets to make them more accessible, then scalpers *are* a problem, because the intended goal is not being achieved; ticket prices on the actual market are still so high as to make them inaccessible to fans with fewer resources.

  • Mike Powers

    "If you cannot resell a ticket to the person you want for the price you
    like, you lose some of your property rights in that ticket and it is
    less valuable to you."

    If this is a giant goddamn problem for you, then don't buy the ticket. There is no inherent requirement for a ticket to be transferrable.

  • Maximum Liberty

    If this was really the goal of lots of artists, then they could insist on issuing non-transferable tickets that have the holder's name on each ticket, and require the venue to check ID, just like the airlines do. I imagine that this would not be something many venues would do if the demand from artists was low or non-existent.

    Venues could also do it on their own, regardless of what the artists wanted.

    Given that this is an obvious alternative, it seems like the fact that no one does it indicates that there is little actual demand for it.

    Now, kudos to Islington Hall for experimenting. Maybe they will be the ones to prove that there actually is market demand for this service. I'd note that their current approach feels facilially like the consumer is getting a raw deal: the ticket can be transferred back to the venue ONLY if the event is sold out. That is worse than being able to transfer the ticket to a broker regardless of whether the event sells out. (And there are two possibilities there: the holder gets stuck with the ticket because it doesn't sell out or the holder has to hold the ticket for longer than desired because it takes time to sell out.) They say they will expand that to events that are not sold out, but there will be some risk there that someone has to shoulder -- if the consumer isn't stuck with it, then either the venue or the artists is (or some combination of the two).

    I suspect that I'd resist it as a consumer, possibly for invalid reasons in part. What would be visible to me is that the ticket is non-transferable and comes with all the hassle of an airline ticket. (Ticketing seems to be the one thing where buses beat airlines.) What would not be visible to me is the lower price I'd presumably be paying. That suggests having two options: a transferable ticket for $X or a non-transferable ticket for less than $X. Then the savings would be transparent, and I'd be more likely to embrace it.

    Again, given that this is an obvious alternative, it seems like the fact that we don't see it in the market means that an insufficient number of people want it. Maybe Islington Hall will give it a try.

    Also, there's no need to be rude to Warren.

  • pbft

    Ever since my (long ago) college days, I've thought that the best approach would be a 'Filene's Basement' approach where tickets initially go on sale at a high price, which then drops every day until the tickets are gone. You might start out 100 days out at $500 per ticket and drop the price $5 per day. That way, anyone who *really* wants tickets can definitely get them, the artist gets the maximum value, and every concert sells out (assuming that there are enough people who want $5 tickets the day of the concert.

  • Not Sure

    "So if they intentionally underprice their tickets to make them more accessible, then scalpers *are* a problem, because the intended goal is not being achieved"

    Unless you think it's possible for artists to make everybody else agree with their opinion of the value of a ticket, the intended goal will never be achieved.

  • ErikTheRed

    "The market can't do much to fix this."

    Of course it can, if you get your head out of the stupid Ticketmaster / Live Nation awfulness. The system right now is literally designed to maximize profits from scalping, because like all other idiotic rationing systems it favors people with lots of time to spend over people with lots of money to spend.

    One word - auctions. They perform beautifully in areas where demand is poorly understood. The also allow fans to sacrifice time preference and perhaps drive further or even fly to see a show that might otherwise be more sparsely attended.

    A "Kickstarter" type offering could let artists experiment with demand in cities they might otherwise not find economically viable, and again expand the time / travel preference tradeoffs for fans. The performers would have to buy some sort of option on a venue date, but done intelligently this opens up a lot of new possibilities - including opportunities for large venues in smaller towns (lower cost of land and labor).

    Best of all, these ideas allows artists to maximize revenue and profits while minimizing risk, and cut out a lot of the scalpers along the way.

    I don't see it happening, though, because artists would be forced to stop pretending that they're not interested in maximizing their income from concerts. Perhaps some genuinely aren't, but I'd be dying to see how much money (if any) they'd be willing to refund or donate to some charity to actually demonstrate this.

  • ErikTheRed

    I've actually bought VIP packages for concerts where IDs were checked at the door. I don't see this scaling up very well though, and you also have the problem of children and others without government IDs attending.

  • ErikTheRed

    Subjective theory of value strikes again, and wins every time.

  • ErikTheRed

    Another idea along these lines would be a Priceline.com-style service where you get last-minute (or week) tickets to an unknown show (perhaps genre-restricted) for a fantastic price. That would be an interesting way to discover different bands. There are plenty of bands that I wasn't particularly fond of until I saw them live as an opening act or at a festival - it's a completely different experience than listening to a studio recording.

  • Mercury

    Depends on what relationship the artist wants to have with their general audience and/or super-fanbase.

    Back in the day it was great to be able to write it to the Grateful Dead and -maybe- get primo tickets for $35 and skip all the Ticket Master BS. Other times I was happy to buy last minute tix from scalpers for a premium (or help them cut their losses after the show started!) and see shows I wouldn't otherwise have seen.

    I believe Madonna and/or The Eagles during their 'Hell Freezes Over' tour were the first rock/pop acts to break the $100/seat barrier (and keep more of the real market value for themselves) back in the 90s. I've also see bands subsequently overcharge and over reach for high priced stadium seats they couldn't sell.

    Brag: My buddy and I were huge fans of the movie 'The Producers' and jumped on tix when the play performance was announced (first Broadway play to break $100 I believe). Saw it 3rd or 4th night, fourth row, center right in front of Mel Brooks himself. We were well pre-gamed and laughed our asses off.

    The real problem with concert ticket prices is that the music business has shifted to a handful of superstars and a bunch of stragglers who have trouble making ends meet. Concerts are more about spectacle and celebrity today too. We need more supply of good, live music….and therefore there needs to be more demand. Everyone thinks the 1970s sucked but just think of the embarrassment of riches you had with national, touring acts on any given Saturday night in a dozen cities in the US.

    Support your local acts and go see more live music of all kinds.

  • Your response to Coyote's point is wierd. You don't say Coyote is wrong, just that he personally should like it or lump it. Coyote didn't say there was a right to transferability, only that it reduced the value of that product. So, you powerfully demolish a strawman you made up. The swearing was enjoyable, too.

  • Peabody

    My buddy is a pretty serious ticker "scalper". His standard line to critics is "I'm just taking advantage of inefficiencies in the market".

  • morganovich

    erik-

    yeah, but you might wind up at this:

    http://www.sfgate.com/sports/article/49ers-Rams-tickets-cheapest-levis-stadium-history-12215863.php

    talk about the "who cares bowl..."

    lol.

  • Mike Powers

    It's...not a *strawman* to argue against a point that the speaker *actually* *made*?

    "Coyote didn't say there was a right to transferability"

    He bloody well did, in the part where he said "If you cannot resell a ticket to the person you want for the price you
    like, you lose some of your property rights in that ticket and it is less valuable to you."

  • Mike Powers

    "given that this is an obvious alternative, it seems like the fact that we don't see it in the market means that an insufficient number of people want it."

    Or maybe, until now, the cost to do it has been higher than the band wanted to pay--which *is* the market at work, an actor saying "the utility I would obtain from this action is less than the potential utility of the resources I would spend on it".

    I mean, we spent ten thousand years *not* doing open-heart surgery, but nobody's going to say that shows there's no demand for open-heart surgery.

    "That suggests having two options: a transferable ticket for $X or a non-transferable ticket for less than $X. Then the savings would be transparent, and I'd be more likely to embrace it."

  • Mike Powers

    "Unless you think it's possible for artists to make everybody else agree
    with their opinion of the value of a ticket, the intended goal will
    never be achieved."

    Sure it is; make the tickets nontransferrable (see above). Require it to be Apple Wallet, or check ID, or only do will-call with the ticket given at the door, or something.

  • Sam P

    That's basically a Dutch auction.

  • That is an odd reply. Coyote writes that "you lose some of your property rights", and you take that to mean that he says transferability is absolute. It takes some flexibility to understand what people are saying. Imagine the word "usual" in front of "property" and it should make more sense.

    And, more swearing. It really does't make your points better.

  • Maximum Liberty

    MP: "Or maybe, until now, the cost to do it has been higher than the band wanted to pay--which *is* the market at work"

    A fine point, with which I agree. To put it another way, I only looked at demand, and should have looked at supply also.

  • James White

    "
    Events often are mispriced for a variety of reasons. Sometimes they charge too much, as in the recent McGregor-Mayweather fight, and the arena is half-empty. The market can't do much to fix this.
    "

    So the people putting on the event charged too much for the event. In a case like this scalpers could help. People who gambled, bought tickets at those prices but didn't resell them brought the event some revenue it wouldn't have taken in w/out the scalpers.

  • Mike Powers

    okay so

    okay so

    okay so

    scalpers

    who sell tickets at a *higher* price than face value

    are going to fix a problem

    with tickets being priced too *high*

    so

    so

    so

    step 1: the scalpers buy the tickets that were priced too high

    step 2: they will resell them for more money than they paid

    step 3:

    step 4: PROFIT

  • Signal

    Got behind on my coyote reading. Just noticed this post. I worked in the industry for years. So it always frustrates me that few commentators have any idea what's really going on in ticketing.

    All the solutions people propose are great -- if you are dealing with one single organization who just wants to sell tickets, and keep the public happy. But that's not the world of music. A concert involves at least five major players. Agent (brings the act), Venue (owns the theatre), Promoter (takes the risk), the Ticket Agency (TMaster), and of course the public. And their all at each others throats.

    The advent of superstars changed the game. The Acts decided that a fair ticket price was less important than a big bag of cash. They got greedy. And everyone else had to scramble to figure out how to make money as they went from taking 25% of the ticket money to 75-95%. TM brilliantly became a protector of ticket revenue by creating a new income stream -- ticket fees -- and keeping it out of the Acts greedy hands. They buy exclusivity upfront. The Venue gladly gives up exclusivity for the revenue protection. Good for TM. Good for the Venues.

    TM gets exclusives for 90% of the market because the Venues need cash. Not because the service is anything but a commodity.

    Amazon will be an interesting competitor. For the first time, they could give Venues even more cash than TM can for exclusive territory. Amazon also does care about making money on each deal. They just want to get their tentacles into customers pockets. If TM were still on the market, I would be selling.