Scalping

by Russ Roberts on July 16, 2007

in Podcast, Prices

The latest EconTalk is a bit off the beaten track. I’m out in California and thought it might be interesting to go the All-Star Game (or at least stand outside the stadium) and interview people about ticket prices and scalping.

The podcast opens with a story about my wife and I getting scalped to say Les Miz, a few months after it opened in 1987. Reminiscing with her about it, we got to talking about why the atmosphere outside a stadium or concert gets so intense as people buy and sell tickets on the street. Part of it is that there are often few substitutes for the pleasure that is being anticipated. Most baseball fans for example rarely get to go to an All-Star Game. There isn’t going to be one every week. And the tickets are fixed. If a lot of people want to go, they don’t expand the stadium. So there’s a lot of potential value there for the serious fan. Even so, there’s a wide distribution of value as well. So even though the ticket on the street is $400, someone might be willing to pay much much more. Of course the scalper is often aware of that. So there’s a dance of negotiation playing against the backdrop of competition from other buyers and sellers.

It just isn’t like most of the other economic transactions we make. It’s nothing like buying a cup of coffee or even going to a regular season baseball game. Unless you go to one a year. Then it’s similar. It’s like buying a cup of coffee if you could only buy one cup a year and you weren’t sure you’d be able to get a cup. You’d really look forward to it and savor it if you got one at a price you liked.

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{ 21 comments }

tw July 16, 2007 at 1:27 pm

I'll be interested to listen to the podcast for both the theory and how the All-Star Game ticket market was this year.

Last year, I actually scalped a ticket to get into the All-Star Game myself. I made one pass through the ticket sellers around lunchtime, and the $300-$400 price was prevailing. I made another pass after work, around 5/6pm, and was still hearing $250-$350.

About 30 minutes before the scheduled start, I made one final pass to try to find a reasonable deal (barring that, I was going to watch it on TV with friends), and ended up buying a $125 face ticket for $110.

Certainly there's a time value involved here, but I like your point about the wide distribution of value of an All-Star Game ticket. I would think those with extremely high values bought their tickets early to eliminate the risk of their not being able to get in. While that certainly reduces the supply of available tickets, assuming they immediately enter the stadium and cannot resell the ticket, it would reduce demand more – upper extreme's demand satisfied.

As for your point about not expanding the stadium, I've noticed something interesting about the Grand Prix of Canada through the years. Their most expensive public tickets, the Gold, are located opposite the pit straight. Some years, when demand is high, you'll see more gold grandstands erected, and those grandstands will be higher. They effectively expand and contract the stadium depending upon the demand for Gold, Silver, and Bronze tickets, no doubt using some sort of revenue maximization calculation.

And I know what your next question is going to be, yes, there are always a few scalpers near the entrance to the track, but it's always on Friday and Saturday of race weekend – you see, you have to buy a three-day ticket, and a lot of people only want to go to the actual race on Sunday. You almost never see scalpers on Sundays, though I believe the ticket office will still sell General Admission.

Will July 16, 2007 at 2:09 pm

We've scalped our way into a couple of baseball games, and it was quite an experience.

The last time we started out with the offer being three tickets for $110, and worked it down to $85.

Brad July 16, 2007 at 2:45 pm

Another great podcast. I bet Russ could interview mimes on EconTalk and make it interesting.

Mark Cuban (Dallas Mavs owner) had one particular frustration with aftermarket ticket sales a couple years ago: resellers not disclosing the face value. He felt that this cause the Mavs organization customer support headaches it didn't deserve.

http://www.blogmaverick.com/2005/07/02/time-to-change-the-ticket-scalping-laws/

There are lots of consumer goods that invite speculation, from the Nintendo Wii to the iPhone (an example of a bust to eager speculators) to limited release Nike sneakers. The Internet and sites like ebay have enabled sharp traders to make good money moving hard to find goods. They've also brought some common sense to thinking about ticket scalping, which has been going on forever. It wasn't long ago that it was downright shady. Now, it's arguably less hassle and even sometimes a wash or better when you add "convenience fees" and "shipping charges" to buy event tickets from Stubhub rather than directly from TicketMaster.

I wonder how long it will be before the venues wholesale tickets to operations like StubHub and they would try to get market value out of each initial sale.

ben July 16, 2007 at 4:19 pm

Is there an economic paper on scalping you can recommend?

Here in New Zealand, scalping is universally reviled. Perhaps it's a rugby thing: rugby administrators around the world jump through hoops to prevent scalping. I am going to the rugby world cup in France in October, I have paid $1500 to go to the world cup final. New Zealand could be knocked out early, in which case a) I will be stuck with a ticket to a game I don't want to see, and b) an Australian or South African or Frenchman will be needlessly kept from seeing a game they very much care about. I don't understand why scalping in that situation is not encouraged by administrators in view of its obvious allocative efficiency.

shawn July 16, 2007 at 6:39 pm

freaking open tags.

shawn July 16, 2007 at 6:43 pm

don/russ/admin: you guys could put forced 'close tags' at the end of a post, somehow, so that you won't get that run-on open italics (or bold) as above. I'm sure you could include it in the comment template.

tw July 17, 2007 at 8:53 am

Just finished listening to the podcast, and enjoyed it. My vote would be for more "live" or "man on the street" applied economics podcasts in the future, though no doubt it'd be on an occasional basis.

I thought Alex described the applied economic theory very well, though he no doubt doesn't know the academic names for what he's doing. But he had me shaking my head when he tried to differentiate between the "scalper" and the "ticket broker" in terms of volume…..c'mon, is there a different name for "hooker" whether she has one client or 10 clients on a given evening?

He brought up the weird situation of Super Bowl XL in Detroit last year, when ticket prices on the street actually went up at the last minute. That was caused by tens of thousands of Steelers fans who made the 4-hour drive to Detroit at the last minute….a complete flood of black and gold fans. They opened up the Fox Theater and Detroit Opera House to simulcast the game for fans without tickets (for a fee, of course). I had arranged for a ticket through one of the other NFL teams, though I had to pick it up from one of the ticket brokers….they offered me a great deal of money in lieu of the ticket because of the spike in last-minute prices….and no, I kept the ticket.

Lastly, an aside to Russ: You actually enjoyed "Beyond The Sea?" I found the writing, editing, and acting sorely lacking, and the singing mediocre – why not use actual Bobby Darin audio????

MF July 17, 2007 at 9:26 am

Former Olin student of Professor Roberts here. Despite your colleagues' recent broadside against current antitrust policy, I still enjoy your site.

My scalping experience, based mostly on ACC basketball games, has varied widely. The most valuable ticket I pursued, but failed to obtain, was one for the late February 1998 Duke-Carolina game in Cameron. Earlier that month, #2 Carolina had beaten #1 Duke in the Dean Dome. Despite the $250 in my pocket that I was willing to spend, I failed to secure a seat for the rematch.

Conversely, the best money I ever spent was the $50 I paid to a fellow Duke alum in the parking lot of the Spectrum just before the legendary 1992 Duke-Kentucky Eastern Regional Final.

A very interesting place to see scalping dynamics is the ACC Tournament. When not played inside a football dome, getting tickets initially can be very difficult; there is high demand from lots of devoted fan bases. The ACC requires that you buy tickets for all tourney games, not just the ones for your team. As a result, as soon as there is an upset, the fans of that team usually flood the market with their ticket books for the rest of the game. For interested buyers, it helps to have a friend with a cell phone in the arena, however. Ticket prices are lower and availability is higher inside. Because the sellers are emotionally distraught over their team losing, they seem to value the quick sale over finding a location away from other competing sellers outside.

True_liberal July 17, 2007 at 11:10 am

I wonder where the pejorative terms "scalping" and "black market" originated; these are merely anti-euphemisms for the free market at work.

"Flea market" and "eBay" are two more!

Russ Roberts July 17, 2007 at 12:12 pm

tw,

I didn't enjoy the movie "Beyond the Sea," either. I enjoyed Kevin Spacey's version of the title song. It's beautifully done. The arrangement is spectacular and to my surprise, Kevin Spacey's voice was fine.

python July 17, 2007 at 7:48 pm

I was at the NCAA Final Four this year. It involves 4 teams playing on Saturday. The winners play again on Monday night. The event is very hard to get tickets from legitimate means (there is a lottery system).

Anyway, after the first game on Saturday many of the losing teams fans simply leave. Many don't want to see the 2nd game of the night, and especially don't want to stay in town until Monday to watch teams they probably don't care about.

But scalping is not permitted at the Georgia Dome.

Our seats were bad and we wanted to upgrade, so when we knew Georgetown was going to lose the first game, we went over to where the Georgetown section was and waited for sad fans to begin their journey home. We asked the people if they were coming back and after a few tries were successful. We paid some money for their seats, and guaranteed ourselves good seats for the 2nd game as well as the title game. (After the 2nd game we went outside and sold our seats for the same amount that we bought the other seats for.)

After the 1st game I decided to try to get even more seats to sell outside thinking that freshly saddened fans would give them away cheaper when they didn't see the true demand for tickets outside the complex.

During the very beginning of my first transaction a security guard walked up and asked the seller what he was doing (no money was in sight). The seller naively said, "Selling my tickets."
The guard was pretty cool about it and said that scalping was not permitted at the Georgia Dome. The innocent student continued "I'm just trying to sell my tickets because I'm not coming back on Monday."
The security guard, looking like Bruce Willis in Unbreakable, leaned in closer to him and said, "Do you understand? You can't sell your tickets inside the Georgia Dome" and he made a slight motion with his eyes.

The student hesitated and finally figured it out.

Me, acting like an innocent bystander asked "Busy night?" He said "Yeah, it's crazy." I asked "Lot of fights." He said, "I'm not here to stop the fights. I'm here to stop the scalping."

(At the game I met a Georgetown professor of "International Trade" in line for nachos. I asked him what he thought of Chuck Schumer. He guffawed and said "that's the worst kind of protectionism." I was happy.)

lowcountryjoe July 18, 2007 at 8:01 am

But he had me shaking my head when he tried to differentiate between the "scalper" and the "ticket broker" in terms of volume…..c'mon, is there a different name for "hooker" whether she has one client or 10 clients on a given evening?

Well, yeah, actually. Though I am not (nor have been) a participant in this market, I do understand that the different names are Call Girl and Escort. And the lower the volume of customer/client, the more favorable in light the provider of the service is viewed in. Supposedly.

shawn July 18, 2007 at 8:45 am

joe, but…that doesn't necessitate a differentiation, does it? Poker is still poker, whether you're playing for $5 or $50, whether it's "lock, stock, and two smoking barrels" or "casino royale".

I too, obviously, was confused by Alex's highbrow attitude…I can understand his aversion to the term, and from a business standpoint, it makes sense to set himself apart, but there's no essential difference.

Russ Roberts July 18, 2007 at 11:57 am

I think what Alex was trying to say had nothing to do with the stigma or morality of the term "scalping." A scalper in his mind is someone who tries to buy extra tickets from someone at the game and then sell them for more than he paid. Alex is a retailer, literally. He works for a ticket broker. So Alex shows up at the game supplied with tickets by a third party and then works on commission. (Though now that I think about it, how does that commission get monitored? I'll have to ask him.)

Half Sigma July 18, 2007 at 12:42 pm

Most baseball revenue comes from TV revenue. In order to keep the blue collar fans loyal TV viewers, they need to preserve the illusion that attendance at the Big Game is egalitarian and open to everyone.

shawn July 18, 2007 at 1:22 pm

so, if the 'scalper' had someone else buy the tickets, hand them to him, and then HE sells them, he's a retailer?

Is it the time difference that makes it 'not scalping'? As in, the simple fact that someone purchased them prior to game day?

It seems that the definition of scalping is 'selling (or attempting to sell) a ticket for higher than face value'. In fact, dictionary.com lists as such: "To resell at a price higher than the established value: scalping tickets to the baseball game."

So…this ticket broker bought the tickets, and is now selling them, through alex. The fact, as I understood it, that these were corporate tickets that were going unused does not somehow release the definition that they're being re-sold for higher prices…if he were reselling turkey carcasses, we could call him a retailer. But since it's tickets, he's a scalper.

I mean…I don't think it's a problem in the slightest that they're being re-sold, per se…I'm just not sure why he takes umbrage at being called a 'scalper'. He seemed (to me, obviously you've actually spoken with him) to prefer his role to be defined a certain way; to be playing the 'escort' role, rather than the 'call girl' role, in Joe's example…but they're both prostitutes, if they're paid for sex, and he's a scalper by definition.

shawn July 18, 2007 at 1:29 pm

(incidentally…it's funny that that definition lists "selling something at higher than the established value"…what exactly would the 'established value' be, other than that which it's sold for?)

Ramiro July 20, 2007 at 3:10 pm

Great commentary, I was hoping someone would explore how "liquidity finds a way". I am exporter in Argentina and I recently went to exchange some US Dollars to the local currency…the spread the exchange houses offers is always greater than the black market buyers (that pay better prices) who camouflage themselves as used cell phone dealers. In an interesting conversation with one, he mentioned how little he was earning now in comparison to the years of hyperinflation; perhaps an externality of the new convertibility…I guess the same goes for someone who really really wants to attend an special event: gotta pay the premium!

superdestroyer July 21, 2007 at 7:54 am

Scalping markets are also controlled by the number of tickets that the buyer wants. A single person can get into almost any event because single tickets are very hard to sell. I knew people who got into see Cal Ripken break the the games played record because he went by himelf.

However, if you want four tickets next to each other for your family, it is going to be very hard.

shawn July 21, 2007 at 9:38 am

superdestroyer…great point, and very true.

Being a University of Florida grad, I know how prevalent a single ticket is on game day. "3-together" is really tough.

On the way to the game, I used to yell out "15!! I need 15 together!" …always got a laugh. Even holding up all 10 fingers was so ridiculous as to be an obvious joke.

I wonder what the variation in cost is between even a single ticket and 2, on up the scale…assuming similar 'quality' of tickets.

Ron Hardin September 7, 2007 at 10:07 am

It's a permanent and essential paradox, as also for the interesting discussion http://www.econlib.org/library/Downloads/Munger_Radio.mp3

The heart of it is that there is no economic concept of “gift'' that makes sense, and that instability spreads out over everything. (The paradox starts with : there can be no gift if you get something out of giving it ; and then what it leads to if you try to avoid getting something out of giving it, a pure expenditure ; and the paradox of potlach.)

If you want to try tracing it out, Derrida goes through it in _Given Time_. I see the chapter is named (I had forgotten, remembering it as about the idea of gift) “The Madness of Economic Reason.''

Derrida, despite his reputation among the impatient, is a virtuoso reader, which is what he writes about.

I think if economics wants to handle this, it has to follow through on Derrida somewhere.

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