Scalpers

I got mine for just twelve pounds!The Observer reports that scalpers (or touts) are making a killing on tickets for the Proms:

One unofficial online site is offering seats for the Doctor Who-themed Prom on 14 July for £500, compared with the official flat-rate price of £12. A ticket for the first night on 12 July is offered for £400, against an original value of £38.

It is not just fans of the Proms who will be disappointed this summer. Many events in the coming months have already sold out – including the Rolling Stones’ Hyde Park concert – with the only tickets available on websites fetching way above face value. Now campaigners are calling for the government to crack down on the touts.

Labour MP Sharon Hodgson, shadow minister for children and families, wants ticket-touting to be made illegal. “Families and music lovers are missing out on a British institution just so that a few individuals can make a fortune. The government needs to use the upcoming consumer rights bill to take action on touting and put the fans first.”

Mark-ups like this have always presented a bit of a puzzle. There are only so many seats available. Ms Hodgson is not quite right: some families and music lovers will miss out, but others will not, and the same number of people will attend the Proms whether or not there is ticket resale. If the initial ticket price is kept low, and resale is effectively put to a stop (which can be done, but at some cost; note that airlines are very successful at ensuring only those whose names first appear on the ticket are able to fly), then tickets are allocated according to who first joined the queue. If the price is set at the maximum price that would still generate a sell-out, or if ticket resale is fully allowed, then in the end tickets are allocated according to who is willing to pay the most. The same number of people attend in each case, but it is a different group of people.

Who benefits? Think of three groups: the concert producer, the concert attendee, and the scalpers. Suppose the cost of putting on the concert is C per person, and the value the attendee places on the concert, also known as their reservation price, the most they would be willing to pay for a ticket, is B. Then the total net value of a ticket is B minus C, and this is somehow divided between the producer, the attendee, and the scalper. If the attendee could buy a ticket at a price equal to C, the attendee gets all the net benefit, the producer gets no profit, and the scalper is shut out. If the producer could perfectly price discriminate, charging each buyer their personal reservation price, then the producer gets all the benefit B minus C, and the attendees and the scalpers get none. If the scalper buys a ticket at price P and resells it at R, then the net benefits are divided such that the producer gets P minus C, the scalper gets R minus P, and the attendee gets B minus R.

So why do producers set a price that virtually invites ticket resale? Why not try to price discriminate as far as possible? We know that sellouts can be desirable for a number of reasons, but they must have known they could charge a higher price and still sell out.

Some possibilities. One is that they do not mind having tickets sold at a low price and allocated by queue – it allows at least some people in who have limited means. Individuals who buy tickets often hang on to them even when resale prices rise a lot: psychologists have found that we tend to change our valuation of goods once we have them in hand, and so will only resell at a price significantly higher than what was paid in the first place. A second is suggested by Pascal Courty in this very interesting (and not too highly technical) paper from the Journal of Economic Perspectives: that scalpers are a way to facilitate the fact that buyers differ in when they want to buy tickets – there are lower income diehards who will queue early to ensure they get a ticket, and higher income busy professionals who wait until the last minute to see if they will have the time to attend, and provide the demand for scalpers tickets (after all, Doctor Who tickets are only being sold at £500 because someone is expected to be willing to buy them at that price). The use of dynamic pricing by concert producers might limit the role of ticket resale to some degree, but, for various reasons, dynamic pricing has not caught on so much in the arts.

 

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Comments

  1. says

    One of the key distinctions here is business models. Arts & entertainment providers operate on a traditional business to consumer (B-to-C) model wherein consumers buy tickets 2 at a time from the box office. If a businessperson wants to buy tickets for business reasons, he’s forced to go through the rigidly democratic consumer portal and abide by all the consumer restrictions and customs.

    Many third party resellers (does anyone still call them scalpers?) emerged to service business buyers who needed an entirely different service model. The guy at the big corporate law firm who gets his clients tickets for games and shows isn’t going to call Ticketmaster or the venue box office, he’s going to call someone who understands his business and who provides services that reflect his needs. He’s going to call a business-to-business (B-to-B) ticket vendor.

    And the B-to-B vendor he calls is highly incentivized to serve his clients well. The more tickets he sells, the more money he makes. Resellers’ businesses operate on a sales model whereas producers and venues’ businesses operate on a marketing model. Many successful resellers stepped in to fill voids left open by arts & entertainment providers who neglected to engage personally with some of the most lucrative buyers in their markets. Arts pros market, whereas ticket resellers sell.

    The issue isn’t as simple as just scaling prices to meet market demand; it’s structural. Arts and entertainment providers who want to cut resellers out of the equation will have to find a way to service the resellers’ clients and that would mean reorganizing their business systems in ways that would disrupt not just box-office procedures and marketing staff configurations, but the fundamental architecture of the world’s largest ticketing systems.

    • says

      Thank you for your thoughtful and informative comment. I agree with you: if the arts providers leave a gap in service provision to a set of potential clients, entrepreneurs will find ways to fill the gap. The puzzle is why the providers haven’t chosen to fill this niche themselves, since they have all the initial advantages to operating such a service. True, they would need to change the architecture of how they ticket, but it seems there would be a great return on such an investment.

      Yes, “scalpers” is regularly used in the popular press on this side of the Atlantic – a quick search for the term in the New York Times will confirm.

    • says

      Re-selling tickets isn’t just a service for those who can’t buy tickets through normal means. It is, for the most part, a form of arbitrage. In many cases, it exploits the non-profit status of the arts and their attempts to reach a wide demographic with affordable, below cost prices. We should not view this any differently until concrete evidence is provided to show otherwise.

  2. says

    The point about the Proms event was that supply exceeded demand and it sold out within minutes. Therefore, in this case, the people paying for tickets at many times the original price are probably those who missed out in the initial rush, rather than corporate or last minute buyers. When I was promoting events, I would try to maximise my income by setting a high price from the start and using the option of dynamic pricing to raise or lower it according to demand. It may seem the organisers missed a trick in not pricing tickets in this way but I suspect music for the people rather than profit is their ethos and therefore they are happier that a lucky few got seats at a price everyone could afford. I agree that it should not be beyond the organisers’ wit to prevent reselling by ensuring that the people who buy the tickets are the ones who use them.

    • says

      Thanks. I better understand your point now. I like the methods used by the opera houses in Vienna, Munich, and quite a few other European cities. Tickets for popular productions are issued by a lottery system. Everyone gets an equal chance and without long lines and stressful rushes. And even more, I like that they often do 8 performances a week of popular shows, so for the most part, everyone who wants to see it can.

      What I really dislike is the American system of priority ticketing for wealthy donors, even if I understand that it might even be necessary in some cases.

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