Case of the Day: Markets, Scalpers, and Queues: The Economics of Event Tickets
For many goods and services, the traditional theory of supply and demand seems to work quite well. Price adjusts to balance quantity demanded with quantity supplied, so we do not observe large amounts of unsold products (reflecting a surplus) or queues (reflecting a shortage). Live events such as concerts and ball games seem to be a possible exception. At many such events, there are a lot of empty seats, which suggests excess supply at the existing price. But at particularly attractive ones, there may be long queues for the limited number of tickets available, which looks like excess demand.
Traditional ticket markets are far removed from the flexibility of the idealized auction market. The organizers of the event set ticket prices and commence sales well in advance of the event at prices that remain fixed until the event occurs (or until all tickets are sold). Moreover, events that are part of a series often have uniform prices for all events, even though some events in the series are expected to be much more popular than others. Professional sports teams have only recently begun to charge more for games against teams that are rivals or against teams that are likely to be strong attractions, despite the fact that they know that tickets to these games will be demanded more heavily than those for other games. (See “Blazers ticket prices to vary according to attractiveness of game,” from the Oregonian, September 18, 2009).
Situations of excess supply or demand reflect lost consumer or producer surplus relative to market-clearing equilibrium, which often open up opportunities for profitable intervention by middlemen or speculators. In the case of event tickets, individual "scalpers"--so-called because they often charge ticket prices far in excess of the original issue price for popular events--have hovered near the entrance to arenas or stadiums for a century or more. More recently, "ticket brokers" have established large-scale enterprises reselling tickets, now often over the Internet.
Some localities limit or prohibit resale of event tickets with "anti-scalping laws." Some prohibit resale altogether; others restrict sales to certain locations or prohibit sale for more than the original ticket price. Anti-scalping laws are often controversial, as described in the news stories below.
"Scalping law trims wallets of Knick fans," from New York Times (June 3, 1999)
"Sox balk at plan for 'scalp-free zone," f rom Boston Globe (April 15, 1999)
"Judge calls city's scalping law idiotic," from Cleveland Plain Dealer (November 24, 1999)
“The fans are disappointed, but is that a crime?” from New York Times, March 5, 2010.
“Scalping 2.0: naming the ticket’s master,” from New York Times, June 6, 2010.
"Of magic and markets: ticket touts," from Economist Espresso edition, August 20, 2016.
In response to the unregulated market for ticket resale, some sports and entertainment organizations have affiliated with resale vendors such as StubHub to provide a legal, sanctioned, and relatively safe market for ticket resale.
Questions
1. Is there really excess demand or supply for tickets for individual events? Is so, why does this arise? If not, how else do you explain empty seats for some events and ticket queues (or scalpers selling tickets at above-face-value prices) for others?
2. How do sports teams and other event sponsors make more money (at least in the short run) by using a differentiated ticket-pricing strategy rather than setting a common prices for all events? This practice is still quite uncommon. What do you think prevents them from doing so more often than they do?
3. Tickets for some events sell out in minutes. It seems likely that the event sponsors would be able to anticipate this. Why do you think they don't charge a higher price that would more closely balance supply and demand?
4. Do the customers who buy tickets from scalpers gain or lose from the transaction (relative to the situation if scalping was prohibited)? Do the scalpers gain or lose? Do the organizations that originally issued the tickets gain or lose from the presence of scalping?
5. Why do you think organizations such as Major League Baseball teams are promoting StubHub (and similar sanctioned sites)?