Thursday, October 6, 2016

Ticket scalping: Musicians vs. Economists

From Mark Perry.
"Two recent articles on “ticket scalping” help to highlight the controversial issue of secondary markets for concert and event tickets by contrasting the viewpoints of musicians and economists.

1. Musicians’ Viewpoint. It’s pretty clear that most musicians hate ticket scalpers, as illustrated by this excerpt from the article “Analysis: what’s the real cost of secondary ticketing?”:
Earlier this month, Chance The Rapper took a fittingly unconventional approach to addressing secondary ticketing around his Magnificent Coloring Day festival in his hometown of Chicago. He bought up around 2,000 tickets (some of which were going for as much as $200 each) from scalpers and then sold them back to fans at face value ($45 and $75).
“I took back almost 2k tix from f**kboy scalpers and made them into physicals. And these are just floor seats,” he posted on Twitter, his disdain for secondary ticketing more than apparent. It was a fine gesture of solidarity with his fans and helped push the issue of scalping into the mainstream again.
It’s just the tip of the iceberg in terms of the industry and artists kicking back against secondary. It is both an ethical issue as well as a financial one, with billions of dollars going into this grey economy and where (most) artists or managers are not seeing the fiscal upside.
Adam Tudhope, manager of Mumford & Sons, estimates that the band “lost” $3 million to secondary markets on a recent US tour. This was money that went through secondary sites, none of which came back to the band. “Our point of view is that we set the ticket price and we don’t want it to be resold for anything higher than that price,” he says.
2. Economists’ Viewpoint. Economists generally support ticket scalping and oppose government interference in secondary ticket markets, as outlined by George Mason economist Tracy C. Miller in his recent article “Scalping Isn’t Scamming”:
Scalping certainly results in some consumers paying higher prices than they otherwise would. But in exchange for high prices, consumers can get the tickets they want, when they want them, without waiting in line or competing to be among the first to buy them online at a given time. Opponents mistakenly conclude that high prices are the fault of scalpers, when in fact prices are high because of a large demand and a limited supply.
Scalping benefits the scalper and the buyer, by getting tickets to whomever values them most highly. If someone decides at the last minute to attend a play, a concert or a game, they can find tickets at some price. Without scalpers, some people who value the event highly would be unable to buy tickets for seats of the quality they desire.
Scalping can also benefit ticket producers – the sports teams or performing artists who supply tickets – in two ways. First, it enables them to earn ticket revenue through face-value prices long before an event, while scalpers bear the risk that demand and prices might fall below the price they paid. Second, because of scalpers, the initial demand for tickets may be higher than it would otherwise be, enabling ticket producers to charge more.
Ticket producers incur expenses long before an event, such as the cost of renting an arena. They can keep their selling costs down by selling all or most tickets quickly rather than over an extended period of time. By buying tickets when they first become available and holding an inventory to sell at times that are most convenient to consumers, scalpers connect buyers with sellers and benefit both. They act as brokers, and the difference between the price they pay and the price they receive is their reward for doing this. The more scalpers compete to buy and resell tickets, the lower the markup that each will earn.
Laws preventing scalping are unnecessary and prevent mutually beneficial transactions. Scalping only occurs when original ticket sellers charge a price that’s lower than some consumers are willing to pay. If scalpers use software that’s efficient at buying and selling tickets, it will save time and effort and each party involved in the process benefits. In one way or another, the ticket producer, the scalper and the people who attend the event will each be better off.
MP: As I’ve argued many times before, the opposition to ticket scalping by musicians and their managers and promoters is unjustified and unfounded. Reason? An active secondary market for concert tickets can only exist in the first place because of important factors that the musicians and their representative have full control over: a) the face value prices of the tickets and b) the number of tickets supplied to the market. If Chance The Rapper wants to express his disdain for scalpers and demonstrate his solidarity with his fans, he doesn’t have to buy up his tickets on the secondary market at a premium above face value and then take a loss by re-selling them at face value. Instead, he can either: a) increase the price of his tickets and/or b) increase in the number of concerts on his tour. He is currently only doing one show in most cities on his tour, although he is doing two shows in Miami and Vancouver. I can guarantee that if Chance did 10 shows in each city instead of one (or move to a bigger venue), he would effectively eliminate the secondary market and could demonstrate his solidarity with fans by supplying enough tickets to meet fan demand. Alternatively, Chance could eliminate the secondary market by pricing his concert tickets closer to the market price, instead of under-pricing them as he is currently doing.

The economics of ticket scalping are very simple:

Ticket Scalping Theorem I: An active secondary market for re-selling tickets above their face value can only exist when the original tickets are: a) under-priced relative to the market-clearing price and/or b) under-supplied relative to fan demand.

Ticket Scalping Theorem II: An active secondary market for re-selling tickets above their face value can easily be eliminated by: a) setting ticket prices closer to their market-clearing value and/or b) supplying enough tickets to meet fan demand for the artist’s live concerts.

Ticket Scalping Theorem III: Musicians and their representatives control the price and supply of tickets, and they therefore have the power to eliminate ticket scalping.

Ticket Scalping Theorem IV: Musicians and their representatives should stop their whining and complaining about ticket scalping, since they have the absolute power to stop it by raising ticket prices and/or increasing the supply of tickets."

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