Ticket scalping refers to the practice of reselling tickets, often for popular events like concerts or sports games, at prices above their original face value. Scalpers will often buy up large quantities of tickets as soon as they go on sale with the intent to resell them at the highest price the market will bear. This allows them to profit from the difference between what they paid for the tickets and what buyers are willing to pay.
Some common questions that arise when examining ticket scalping from an economic perspective include:
What factors cause the existence of ticket scalpers?
The existence of ticket scalpers stems from the inherent nature of event ticketing. For popular events, demand for tickets often far exceeds the supply. Venues have a set capacity and can only sell so many tickets. When tickets first go on sale, their price is set by the event organizer or venue. This initial price is often less than what the market clearing price would be (the theoretical price at which supply exactly equals demand). Because of excess demand at the original price, an opportunity arises for scalpers to buy tickets and resell them to consumers who are willing to pay more.
Scalpers are able to determine how much buyers are willing to pay for tickets on the secondary market. They capture this consumer surplus by reselling at higher prices. Ticket scalping exists due to insufficient price discovery and supply at the original point of sale.
Do ticket scalpers provide a beneficial service?
Some economists argue that ticket scalpers provide a beneficial service by allowing price discovery and reallocation of tickets. By reselling tickets, scalpers restore market equilibrium. The willingness of buyers to pay scalpers’ high prices indicates that the initial ticket price was likely too low. Scalpers charge what the market will bear and allow tickets to go to those who value them most highly. Their existence may indicate that event organizers are not properly gauging demand or maximizing revenue.
Scalpers also provide convenience to consumers by ensuring supply at the last minute. Patrons who decide to attend an event at the last minute can obtain tickets, even if the event is sold out. Scalpers take on inventory and timing risk that consumers would otherwise face. So while their prices are higher, some view scalping as adding value through improved price discovery and market efficiency.
Do ticket scalpers exploit consumers?
Critics of ticket scalping argue that scalpers merely exploit situations where demand far exceeds supply. They take advantage of consumers by charging exorbitant prices due to lack of competition in secondary markets. These high prices often far exceed the scalpers’ costs.
Some believe ticket prices should be affordable for the average consumer. When scalpers drive up prices, tickets become unaffordable and only accessible to wealthy buyers. This makes it difficult for fans and less affluent consumers to attend events. Critics view scalpers as simply exploiting supply-demand imbalances at the expense of consumers and fans.
However, others counter that tickets will be expensive regardless. Scalpers at least ensure tickets go to those who want them most badly instead of being wasted on those who don’t value them highly. Nonetheless, many still view the practice as predatory against less affluent consumers.
Should ticket scalping be regulated?
Many argue that scalping should be heavily regulated or even illegal. Laws in some jurisdictions cap how much scalpers can resell tickets for or prohibit them altogether. The intent is to make event access more equitable for the general public.
However, economists generally oppose such regulations as inefficient. Price ceilings can lead to greater scarcity as scalpers have little incentive to acquire and resell tickets. Tickets may instead be wasted on those who don’t actually want them very much. Prohibitions also don’t eliminate scalping but rather drive it underground into black markets.
Most economists argue scalping should be legal. Prices should be set where supply and demand intersect. Attempts to artificially suppress prices simply create inefficiencies and deadweight loss. They advocate that increasing supply or using better pricing models are more effective ways of making tickets affordable than trying to regulate scalping.
Key factors driving ticket scalping
Several interrelated factors create market conditions favorable for ticket scalping:
Excess demand
As mentioned, scalping thrives when demand for an event exceeds the available number of seats. Fans want to purchase more tickets than are available at the original price. This excess demand enables scalpers to acquire and resell tickets. Scalping is prevalent for sold out or hotly anticipated events like concerts, championships, or playoffs.
Underpricing
Scalping also depends on events initially underpricing tickets. If promoters charged the market clearing price from the outset, scalpers would have no price arbitrage opportunities since supply would equal demand. But promoters often underprice to generate buzz and media attention. This gives scalpers room to raise prices. Promoters miss out on revenue while scalpers capture consumer surplus.
Price ceilings
Promoters also sometimes impose ticket price ceilings. They wish to keep prices affordable for the average fan. But like any price ceiling, this creates a gap between supply and demand. Scalpers can exploit this by reselling at market prices up to the ceiling limit. Price ceilings aim to help consumers but end up benefiting scalpers.
Scarcity
Many events inherently have a fixed supply of seats. Venues only have so much capacity. When this scarce supply is less than demand, scalping can flourish. Releases of a limited number of tickets also contribute to scarcity. Scalpers will buy up scarce ticket supplies as soon as they are released.
Speculation
Scalpers speculate on what the market price will be on the day of an event. Events like playoffs or concerts have uncertain demand. By tying up ticket inventories early, scalpers can capitalize on last minute price spikes. Consumers also often make impulsive purchasing decisions as game or concert dates approach. This speculative aspect enables sizable margins.
Lack of transferability
Many tickets cannot be resold or transferred between buyers. Ticketing systems purposefully impose restrictions to inhibit scalping. But this also fuels scalping by making the secondary market less efficient. If fans could easily resell unwanted tickets at face values, it would drive down premiums. But with no resale options, scalpers can charge more.
How technology has impacted ticket scalping
Technology has profoundly shaped modern ticket scalping practices:
Bots
Scalpers now use bots to automate buying tickets the moment they go on sale. Bots scan sites for newly available tickets and purchase them within milliseconds. This allows scalpers to snap up huge inventories before regular consumers can even get online. Bots have intensified supply constraints and enabled cornering of ticket markets.
Secondary markets
Internet secondary markets like StubHub have also transformed scalping. Large pooled inventories of resale tickets have driven scalping from street corners to online platforms. Secondary markets also facilitate price discovery by letting scalpers see what buyers are willing to pay. This reduces speculation risk.
Digital tickets
Mobile and digital tickets have made reselling easier. Paper tickets were largely non-transferrable. But digital tickets enable instant online resale. This improves liquidity but also lets scalpers instantly transfer and resell tickets in ways not previously possible with physical tickets.
Data analytics
Scalpers rely on data scraping tools to estimate demand and optimal prices. Bots crawl social media to gauge fan engagement with events. Scalpers use past sales data to forecast prices. Analytics allow them to finely tune pricing to extract maximum profit as market conditions shift.
Payment systems
New payment technologies like Apple Pay also facilitate scalping by making transactions seamless. Scalpers can instantly receive and send payments when making sales. Cryptocurrencies further obscure payments and make enforcement against illegal scalping more difficult. Improved payment tech enhances scalpers’ capabilities.
Case study: Ticket scalping of Broadway’s Hamilton
The runaway Broadway success of the musical Hamilton provides an illustrative case study of how ticket scalpers exploit show popularity:
Soaring demand
Hamilton enjoyed immense critical and popular acclaim after its 2015 debut. It became the hottest ticket on Broadway, with demand far exceeding the theater’s seating capacity. The face value price of tickets was between $99 and $199.
Limited supply
The musical could only seat around 1,300 patrons per night across all shows. Long term closures due to COVID-19 further limited supply. With NYC tourism booming post-pandemic, supply shortages grew even more severe.
Extreme markups
At the height of Hamilton’s popularity, scalpers began charging astronomical sums – often $500 to $1,000+ per ticket. Some tickets were resold for as high as $10,000. Markups reached 5-10x the original prices.
Rampant bot usage
Bots purchased huge blocks of Hamilton tickets the moment new blocks were made available each week. Up to 30% of all tickets were scooped up instantly. This further squeezed supply for regular consumers.
Harming real fans
The extreme prices put Hamilton tickets out of reach for many middle-class families and diehard fans. Wealthy out-of-towners often got tickets while NYC residents were priced out. Long standing patrons were often unable to obtain tickets due to bots.
Capturing surplus
Scalpers exploited the limited supply versus soaring demand. Even at markup prices, tickets were in high demand. Scalpers captured the large consumer surplus between face values and amounts buyers were willing to pay.
The case of Hamilton illustrates how scalpers can effectively extract surplus when demand spikes for a hit show. It offers lessons on proper pricing models and bot usage policies.
Pricing approaches to curb ticket scalping
Event organizers use several pricing strategies to try to counter scalping:
Market-based pricing
Also called variable or dynamic pricing, this charges prices according to real-time supply and demand. Organizers can adjust prices higher or lower to minimize scalping incentives. Tools like online auctions allow efficient price discovery.
Tiered pricing
This charges higher prices for front row or VIP seats that are in high demand. Lower prices are used for less desirable sections. This captures more consumer surplus and leaves less room for scalpers to speculate.
Price ceilings
Capping resale prices is intended to limit scalpers’ ability to inflate prices. However, economists caution this can lead to unintended consequences like lower supply. Black markets may also emerge.
Lotteries
Selling some portion of tickets by lottery aims to give average consumers fair shot at access. However, lotteries have high administrative costs and still enable limited scalping.
Paperless ticketing
Requiring in-person ID pickup prevents scalpers from reselling. But this reduces transferability for regular consumers. Digital transfer restrictions also face circumvention.
No pricing approach is perfect. Variable or tiered pricing aligned with demand is generally the most efficient model economists recommend.
Legality and regulation of ticket scalping
Governments use varied approaches in regulating ticket scalping:
Approach | Description |
---|---|
No restrictions | Scalping is fully legal and unregulated. This lets the free market determine prices. |
Bans and caps | Scalping is banned or price caps imposed. Aims to improve affordability but can lead to black markets. |
Registration and taxes | Scalpers must register as resellers and pay relevant sales taxes. Improves oversight. |
Designated resale markets | All reselling must occur on approved secondary markets. Adds structure. |
Most economists argue scalping bans lead to inefficiency and unintended consequences. Registration requirements strike a compromise that maintains open pricing while increasing transparency.
Jurisdiction also matters – local versus national laws result in varied scalping policies:
Jurisdiction | Scalping Laws |
---|---|
New York | Caps markups at 45% of face value. Primary market transfers only. |
Los Angeles | No price restrictions but reseller registration required. |
United Kingdom | Caps at face value plus 10%. Bans use of bots. |
Ontario, Canada | Caps at 50% above face value. |
Local scalping laws in major event markets aim to limit abuses. But effects are mixed, and enforcement difficult across jurisdictions.
Ethical perspectives on ticket scalping
Ethical views on ticket scalping diverge:
Supportive arguments
– Scalping is a voluntary transaction between consenting parties
– Controls pricing through free market supply and demand
– Allows high valuation consumers to purchase tickets
– Provides convenience of availability even with limited supply
Critical arguments
– Scalpers withhold access from typical fans and consumers
– Large markups exploit demand and scarcity of fixed capacity
– May discriminate against less affluent demographics
– Use of bots is inherently unfair technology against consumers
– Circumvents intent of event organizers on pricing
Perspectives depend on one’s ethical values and principles. Economists focus on voluntary transactions and efficiency. Others emphasize equitable access on merit. Views are mixed on the ultimate fairness of scalping.
Potential future evolution of ticket scalping
Looking ahead, several technological and market shifts may impact ticket scalping:
Tightened bot policies
Venues and platforms may strengthen efforts to detect and deny bots from making bulk purchases. This could help restrict scalpers’ ability to corner inventories.
Direct marketplaces
Disintermediation via direct sales platforms could reduce speculative scalping. Performers may increasingly sell directly to fans rather than third-party vendors.
Dynamic pricing
Broader adoption of demand-based pricing could lead to real-time price shifts that deter scalping. Pricing bots may counteract buying bots.
Digital ticketing
New blockchain-based ticket systems could better track transfers and enforce policies. But digital enhancements may also enable more scalping.
Reputation systems
Peer-based rating systems could help fans identify fair resellers versus predatory scalpers based on past behavior. This improves transparency.
Increased regulation
Ongoing public frustration with scalping may spur additional anti-scalping legislation. But effects could be mixed as seen in past regulatory attempts.
It remains to be seen how technological and regulatory changes shape scalping practices. The dynamics underlying ticket reselling markets will likely persist despite shifts in process. There are no obvious solutions but increased pricing sophistication could counteract some scalping incentives over time.
Conclusion
In summary, ticket scalping persists primarily due to fundamental supply-demand imbalances. Underpricing of fixed capacity events and speculative resale drive the practice. Scalpers provide a market-clearing role but also potentially exploit consumers.
Pricing strategies focused on capturing surplus and increasing supply show the most promise for reducing scalping incentives. Caps and bans are inefficient and often ineffective in the long run. Technological change is a mixed bag, enhancing scalpers’ tools as much as event organizers’ countermeasures. There are no perfect solutions but economic principles around pricing and supply can at least limit the worst abuses.
Going forward, no regulatory or technical quick fixes are likely. Rather, systematic improvements to ticketing systems focused on demand transparency and transferability offer the best path to creating a balanced, efficient marketplace.