Ticket Scalping: A Way to Clear the Market
Ticket scalping (or ticket resale) is the act of reselling tickets for major events. Ticket scalping occurs very often for large sporting and entertainment events (examples include major league games, concerts, musicals, etc.) events. Ticket scalping is forced to exist because box offices tend to artificially under-price tickets which creates excess demand. Because of this, the market doesn’t clear. This allows ticker re-sellers (or ticket scalpers) to purchase tickets in bulk at the original low price and then sell them at a higher price to customers who are willing to pay more (mainly because they were not able to purchase tickets at all when they were initially on sale at the box office). After the ticket scalpers sell tickets at a higher price to the remaining demand, the market clears. Many argue that ticket scalping should be illegal because it is immoral and unethical (perhaps because ticket scalping can cause tickets to be sold for outrageously high prices which are much more than the value of the ticket). However, preventing ticket scalping would disrupt the free market since the market would never clear.
One reason why the tickets are not originally sold at market clearing price is because the producers want to ensure that the stadium or auditorium is completely packed, so they under-price tickets ensuring that they will sell out. Once the tickets are sold out, it provides incentive for consumers who do not have tickets to buy tickets also. Additionally, in the beginning because producers are uncertain about the amount of demand, they cannot determine the market-clearing price. Similarly, consumers also do not know how much they value a ticket when they first go on sale. After the initial sale of tickets at a lower price, both consumers and producers can determine their valuation of the tickets and the amount of demand for tickets is more tangible. At that point, it is easier to clear the market.
The most obvious connection to the material covered in class is market-clearing prices, but also the ticket brokers are acting as middle-men between the consumers and the producers. This is similar to trading with intermediaries. Traders or intermediaries typically make large profits since they are able to buy from producers at relatively low prices and sell to consumers for higher and higher prices as the event approaches (since consumers become more and more desperate to obtain tickets). However, prices tend to drop when the event is only a few hours away. This is because the traders must sell the tickets (at any price) before the event starts, since the tickets have no value after the event. Since there are many ticket brokers in the country, no single brokerage firm controls even more than 1% of the market.
While ticket scalping may seem unfair or unethical to some, it is a necessary process to clear the market.
Source: http://jimmyatkinson.com/papers/the-economics-of-ticket-scalping/