Thursday, January 29, 2009

Ticket Scalpers

The most ubiquitous examples of market failure might be found in stadiums and concert venues across the country. I'm referring to primary markets in tickets to sporting, music, and exhibitor's events where the market doesn't clear. It's difficult to define a true failure; one or several events where the market doesn't clear may actually be optimal from a seller's perspective in the larger picture. But in the event buyers are unable to pay any price to obtain what was otherwise available from sellers (typically via queue-rationing), there exists an arbitrage potential that is met by everyday Heroes of Capitalism in the secondary tickets market.

Ticket scalpers fill an important void, but that's not why they're heroes to me. Scalpers face legal harassment and are subject to harsh regulatory regimes bolstered by public distrust of their work. This stems largely from popular misunderstanding of markets and a strange fealty to the notion of fixed prices for entry (reminiscent of "intrinsic value"). Suppressing prices for a fixed number of tickets makes as much sense as trying to hold a balloon underwater, but scalpers still bear the heavy burden of morally-tinged public scorn and laws meant to limit their effectiveness. End-buyers generally feel no pain (nor should they). Primary sellers, who create discord when they purposefully sell tickets below market price, should be viewed as provocateurs but generally escape responsibility for queue-rationing an otherwise perfectly marketable product and painting scalpers as improper.

A Google search shows that many people have written about ticket-scalping, including economists. I didn't want to read any of it before I jotted down my initial (haphazard and imperfect) thoughts about scalpers. A preliminary search finds an old Paul Krugman article on the matter, which adds some nuance. I can understand a venue wanting to create a shortage for various reasons (which they have a right to do). I can't, however, accept them using public authorities to squelch markets they don't like. I'd say it's up to the venues to keep their own houses in order. Regardless, ticket scalpers will hopefully continue to fulfill their role.

1 comment:

Justin M Ross said...

It's not really a market failure that the venue's don't set the market clearing price. Any one single agent can be mistaken on the expectations of what the demand will be, in addition to other reasons why they might like shortages. (A similar example are the bars that don't adjust the cover price to clear the line at the door.)

From my understanding, many venue's actually like ticket scalping because it hedges their risk and allows them to sell tickets that might actually go unsold. This is probably why there are anti-ticket scalping laws are not more prevalent than they are.

Great blog everyone, keep up the fantastic work you are doing here.