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. 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 all tickets are sold). Moreover, events that are part of a series often have identical prices, even though some events in the series are known to be much more popular than others. Professional sports teams are only just beginning to charge more for games against teams that are rivals or against teams that are likely to be strong contenders, 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--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.
1. Is there really chronic excess demand or supply for event tickets? 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 could sports teams and other event sponsors make more money (at least in the short run) by using a different ticket-pricing strategy? What prevents them from doing so?
3. Who loses and who gains from the presence of scalpers (or ticket brokers), who resell tickets for whatever price the market will bear? Given this, who do you think is behind the anti-scalping laws in New York, Cleveland, Seattle, Boston, and other cities? Who would favor their elimination?
4. What do you think is the best approach to the question of ticket scalping: free market, restriction, or prohibition? What considerations (and whose interests) did you weigh most heavily in coming to this conclusion?