Sunday, June 21, 2009

Of Scalping

The ethicist@nytimes (here and here) argues that concert tickets ought not be resell-able:

Markets function best when supply can adjust to demand... Given her popularity, her shows will necessarily be in short supply. The question of how to allocate that supply is thus inescapable... I’m not persuaded that virtue requires the most popular singers to perform for only the people with the most money...

Scalper markets exist because performers consistently set their ticket prices below market value. This is generally explained as because setting ticket prices at the, often obscene, market value would generate bad press, in particular the claim that the performer cares little for average fans. I think that explanation is questionable. Specifically: It argues for ensuring that some tickets are priced afford-ably, but not for pricing the best tickets at a discount.

I more suspect that tickets are priced to sell out accounting for the depth of the market. A performer wants sell more tickets because an empty arena diminishes the show. If there are, for example, 5,000 tickets to sell in a section, the price should be around what the 5,000th person (ranked by amount willing to pay) is reliably willing to fork over. It is similar, to some degree, in this regard, to Stock IPOs. As with stock IPOs, selling into (secondary) markets will be profitable because the person who did not partake in the initial allocation willing to pay the highest price for a ticket, will likely be willing to offer a substantive premium on top of that "5000th" price.

The smaller the percentage of tickets resold out of total tickets is, the more likely that this explains pricing. Further, if this is the dynamic, face prices should go down if the resale option is taken away.

In any case, it is clear that none of the Ethicist, Miley Cyrus and, the Champion Contra-Ticketmaster, Bruce Springsteen have ever been faced with buying tickets they could only marginally afford. Otherwise, they would understand how secondary markets actually serve to make tickets more affordable to average fans in two ways. First, the option to sell the tickets if for some reason they are unable to attend is more valuable to average fans, for whom the face price is meaningful. Second, many fans are able to afford the face price on their own tickets only by profiting on the sale of extra tickets.

One final note in regards to Springsteen. The secondary market for his tickets is unusually pricey. This is, in part, due to the affluence of his fans, but also because Springsteen fans, far more, I suspect, than other fans, are likely to attend multiple shows in a given tour, dramatically increasing demand). Springsteen encourages this by giving fans something new/different each and every show. In other words, if Springsteen was truly concerned about secondary market prices, he would adopt a clear policy of playing identical shows night to night.

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