Sunday, 29 March 2009

A comment on Hitsville

Today I came across a blog called Hitsville which has a posting on it called An economist on scalping, which I read. The posting opens by saying
A British economist, Eric Crampton, discusses scalping here. When he talks about “market clearing” he means “everything selling for the top price people will pay for it,” and in his world that’s how things not only should work, but do, which is why scalping takes place and “clears” the tickets appropriately.
Now there is the obvious error that Eric is Canadian, well no one is perfect, and living and working in New Zealand. But there are other errors in the paragraph as well. Market clearing does mean "everything selling for the top price people will pay for it", it means what it says, the market clears, ie supply equals demand at the going price. Note that the marginal buyer will pay what he thinks the good is worth but the intramarginal buyers will pay less than what they think the good is worth. That is, these buyers will not pay "the top price people will pay for it", they will pay less than that. The top price they are willing to pay is the height of the demand curve and as demand curves slope downwards the market price will be less than the height of the demand curve for all but the last buyer.

Note the claim at Hitsville would be true if the scalpers were able to use first degree price discrimination, that is, charge each person their maximum willingness to pay-the height of the demand curve for each person. But we don't see this in practice.

Now having read the posting, I posted a comment pointing out that the economics in the article were wrong. I said what I have just said above. I have just gone back to the site to find the comment has been deleted. I guess bothering to correct errors is not a big hit at Hitsville!


Crampton said...

Think comments there are held for moderation; I put up a short note saying I'm not actually British, but it hasn't yet made it on.

Paul Walker said...

Just did a check, you are still British and your comment is not there.