The virtues of scalping

by Russ Roberts on August 9, 2007

in Prices

Here is Jeff Jacoby on the decline of anti-scalping legislation and why it’s a good thing. Here’s my slightly off the beaten track podcast on scalping.

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{ 10 comments }

Al August 9, 2007 at 10:48 am

Do you know of any ticket scalping occurring at operas, or symphony orchestra concerts?

Chris August 9, 2007 at 6:16 pm

There is an argument in favor of anti-scalping laws: the entertainer benefits (1) from all the hype and long lines surrounding the purchase of underpriced tickets and (2) pricing them below market allows the hard-core fans of the entertainer to purchase tickets when they otherwise would not be able to.

Showing my age here, let's say it's Dave Matthews. He makes money in two main ways: first, from performing at concerts and second, from selling records.

WRT (1), people in long lines waiting to buy tickets for Dave's concert will attract attention to Dave, and will help him sell records, possibly recouping the "loss" he would have taken by underpricing his concert. In addition, that buzz creates demand for his other concerts and for merchandise sold at the concert.

(2) has the same effect — if Dave's fans are unable to afford tickets for Dave's concert, they may get mad at Dave personally and stop buying his records, or start bad-mouthing him. (Sure, it's not rational, but teenagers are provably irrational.) And, that has a negative impact on Dave's ability to sell future tickets or music.

These are both reasons not to price at below-market values, but do not directly support anti-scalping laws. Anti-scalping laws, however, protect the entertainer's ability to under-price by artificially holding demand down (or at least below where it would be without the laws.) Without the anti-scalping laws, many more scalpers would be in those lines, and fewer "true fans" would be able to see the show, with the same negative effects as in (1) and (2).

[Note: I don't think supporting those effects is a sufficient justification for anti-scalping laws.]

Ammonium August 10, 2007 at 2:09 am

The FedEx truck delivered four tickets to a college football game to my house today. I bought them over the internet. The total price was $13.91.

I believe that it used to be illegal to resell tickets at anything other than face value in my state. These tickets would have sat unused. Instead, I get to go to a cheap football game (the cheapest available tickets from the school are $42 each plus fees) and the person who originally bought the tickets gets a few bucks.

Sam Grove August 10, 2007 at 10:05 am

Without the anti-scalping laws, many more scalpers would be in those lines, and fewer "true fans" would be able to see the show, with the same negative effects as in (1) and (2).

And scalpers sell tickets at higher prices to whom? Non-fans?

Chris August 11, 2007 at 9:31 am

Sam –

Maybe if I had used the word "Rabid fan," it would have been better.

Going back to my Dave Matthews example, it may be that Dave is trying to attract a younger crowd (the "Rabid fans") who could not afford to see the show at the market price, which is heavily influenced by the ability of older, more affluent, fans to buy tickets. Heck, some of those more affluent people might not even be fans — maybe it's a company buying tickets to use as an incentive or give-away to clients.

The problem here is the bizarre model where some customers are more valuable to the producer than others, even if the more valuable customers can't pay as much as the others.

Now, the bigger question is whether its a good idea to pass laws that allow some types of producers to enforce those preferences.

Sam Grove August 11, 2007 at 11:55 am

Maybe if I had used the word "Rabid fan," it would have been better.

Perhaps "poor" rabid fan would do.

Maybe it's because there is a recording "industry" that poorer fans may be perceived as more valuable than wealthier fans. If artists made most of their moola in live performances, then they would sell their tickets at market rates.

It strikes me those who complain most about scalpers are those who have difficulty affording higher priced tickets.

It also occurs to me that rabid fans are more likely to have seen an artist previously and likely multiple times as well. Perhaps their impact on the demand side has cause an increase in the value of tickets.

Is it fair to expect taxpayers to subsidize their habit by paying for enforcement of anti-scalping laws?

Chris August 11, 2007 at 10:48 pm

Sam –

I think it's more than just a personal wealth thing. Ten million poor teenagers can probably support a musician better than one million adults. But, if your concerts are prices out of the reach of teenagers, they're much less likely to buy your music.

In general, though, I agree with you — I don't really want my government saying what I can do with a concert ticket.

Sam Grove August 11, 2007 at 11:04 pm

But, if your concerts are prices out of the reach of teenagers, they're much less likely to buy your music.

There is another approach, the artist can increase the supply of performances, or serve larger venues.

Chris August 12, 2007 at 6:48 pm

Sam –

Excellent. Thank you — you have succinctly stated why anti-scalping laws are unnecessary, at least for musical performances. For things such as, say, the all-star game, that approach is probably not going to work well. Of course, my hypothetical model breaks down there as well….

Sam Grove August 13, 2007 at 10:03 pm

Artists could even commit acts of charity by handing out tickets to homeless individuals for the express purpose of selling them.

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