The case for 'touting'

From the IEA comes this audio on scalping and the value of it.

The resale of tickets has been around for as long as humans have charged entry to events. Evidence of ticket 'touting' goes all the way back to Ancient Rome.

In the 21st century though, it's becoming an increasingly controversial practice.

Companies like Viagogo, Seatwave and Stubhub now offer tickets to otherwise hard-to-reach events - but, often, at a hefty price.

Today on our podcast, IEA News Editor Kate Andrews interviews Dr Steve Davies, the IEA's Head of Education and author of new report 'Digital Resellers: The case for Secondary Ticket Markets'.

Steve believes that ticket resale is simply one aspect of the 'Sharing Economy' which enables voluntary transactions to take place between willing buyers and sellers. Those who aim to resell tickets for a profit, Steve argues, are themselves taking on considerable risk.

We examine the economics, and the morality, of ticket resale, and take a look at the way artists like Ed Sheeran, Taylor Swift and Madonna use market mechanisms to sell their products.

The discussion by Steve Davies is based on a new paper he has written for the IEA entitled Digital Resellers: The Case for Secondary Ticket Markets. A summary of the report is:

• The reselling of tickets for events has a long history, dating back at least to Roman times.
• Such secondary markets in tickets are no different from other kinds of secondary market, and serve the same purpose: to correct flaws in the initial primary market.
• In recent years, new technology has led to the appearance of many new players in this market. Most of these are facilitating platforms rather than being directly involved as buyers or sellers of tickets.
• This market is fragmented with no firm having more than a very small part of the total secondary ticket market. That market itself is still small compared to the general market for tickets but is growing rapidly.
• This has led to many calls for limitations on ticket resale and, in particular, for what are effectively price caps.
• These arguments are wrongheaded and would disrupt an effective market. The more fundamental or underlying objections to secondary ticket markets are simply rejections of the principles of trade and a refusal to accept the reality of scarcity.
• It is the primary market for tickets that is dysfunctional. The secondary market is correcting its defects, so that tickets get into the hands of those who value them most. We are probably moving towards a new kind of market in tickets.

Why you shouldn't take economic advice from a comedian.

From CBCNews.ca comes this news story:

One of the hottest comedians in show business is warning fans not to buy or resell overpriced tickets to his upcoming shows — because he might just cancel the tickets.

Louis C.K. announced Tuesday that the West Coast city would be the only Canadian stop so far on his forthcoming North American tour.

The award-winning funny man will play the 6,000 seat Thunderbird Arena for two nights on Dec. 7 and 8. And once again he was capping prices well below average for a top notch show.

"As always, I'm keeping the price of my tickets down to an average of $50, including all charges," he said in an email blasted out to fans to announce the dates. "I know that's not nothing. But it's less than more than that."

Somewhat predictably, tickets were sold out with minutes, leaving desperate fans searching online for seats at the show.

And that's where the warning comes in.

It turns out C.K. has a long-standing beef with scalpers and resellers, and he takes personal pride in jamming their attempts to profit from his shows.

"Regarding ticket resale: we take great efforts and have many methods of finding out what inventory is being sold on broker sites like Stubhub and Vivid Seats and immediately invalidating those tickets," he declared on his website.

Now this guy may be great at being a comedian but he is a crap economist. If the quantity demand is greater than the quantity supplied the price rises to clear the market. Now Louis C.K. may not like this bit of basic economics but that doesn't stop it from being true. The reason that you see scalpers is simply that the ticket price is below the market equilibrium price. So if he wants to prevent scalping he just needs to increase the price of tickets.

But from the above you see that he wants to keep "the price of my tickets down to an average of $50". Low price implies below equilibrium pricing which in turn implies scalping to get tickets into the hands of those who value them most. That is, his own pricing policy creates scalping. An insolvable problem?

What to do? If he won't increase the ticket price does he have live with scalping? Actually no, there is a very obvious solution to this. All he has to do is increase supply. As supply increases the price will be driven down. So to get a $50 price with no scalping all he has to do with play a bigger venue or put on more shows, or both. These things will increase the supply of tickets which will decease the price until, if he gets the supply just right, the equilibrium price is $50. And, of course, there will be no scalping. Problem solved!