Whats wrong with ticket touting anyway?

1fcd531b27e7cb5e1ae15cfc2ba01703The recent events in Rio have brought the issue of ticket reselling, also called touting or scalping, to the minds of many. Without getting into the issue at hand, which is under legal investigation, it raises some interesting questions. Why are some trades seen as repugnant exchanges and others not? How should we decide?

middle-men-5-638Ticket touting is banned in many jurisdictions. It is generally seen as unfair, usually by those who did not get the tickets in the first place and quite naturally do not like having to pay a price greater than that which would initially have secured the good. Nobody likes that. However, from an economic perspective, what is the essential difference between someone acting as a middleman in the market for teapots and the same person acting as the middleman in the market for tickets? Both are scarce goods ; both may have instances where demand is greater than the supply; both are capable of being transferred. In fact almost every good we buy involves middlemen. The vender is a middleman, and acts to bring supply and demand into balance.  Note here that price can be a combination of time or effort (queuing, getting up early to be online etc) and money. If you wont pay

36f7a49d00000578-0-image-a-17_1470680453407In the case of concerts and events where there is significant scalping, there is clearly a situation where the price is set too low initially. Perhaps this is because of image and reputation – the GAA do not want to set Hogan Stand tickets at €500 for the All Ireland Hurling Final, even though they could probably do so, as that would “lock out the ordinary fan”.  Nor do they want to see empty venues. In that instance it is clear that the clearing price was set too high for the demand in rio as witnessed by empty seats all round. Of course, another reason is demand uncertainty, as potential consumers will be more likely to take a chance on an event if the cost of entry is low.  A final reason is time inconsistency – the ticker seller is concerned with profits now, the event seller with long-term revenues.  In reality a ticket is not the good being purchased. It is more akin to an option. It gives the right, but doesn’t impose the obligation, to go to the event. This has led to some to propose that organized exchanges for resale be set up to combat scalping. But where demand will exceed supply then prices will rise and the “ordinary fan” will be cut out again. The market mechanisim is one that is impossible to quash. That doesnt stop people from demanding so – but nowhere ever has this been managed. In prisons, in POW camps, in the grimmest of communist gulags a market exists when there is a good that has supply demand imbalances.

goodsA sports event has certain characteristics. Occupying a seat is done at the expense of someone else occupying it. It is, in economic terms, excludable.  But more people, within limits, than less does not impact on the enjoyment. There is little rivalry in enjoyment of the good when more than one person is so consuming. In fact it arguably adds to the enjoyment. Thus tickets for sporting events are really more like club goods than the private goods we think of them if we allow a free for all or a public good if we start to demand them to be made available to all. If we think a sporting event or a concert is a public good and thus unsuited to the market mechanisim, we need to think hard.

3-320equilbrium_13In essence the problem is one of rationing. Whatever approach – a market mechanism, a lottery, whatever, someone who would have wished to consume the good will end up not consuming it.  There is always “unfairess” when there is an excess of demand over supply. Society determines that there should not be markets in some transactions. By and large the sale of human organs for transplantation is illegal worldwide.  Two conflicting arguments are made – that the price will be too low as the desperate poor sell their kidneys for a pittance, and that it will be too high so as to allow only the hyperrich to purchase health and long life. Both cannot be true but we cannot observe the supply and demand characteristics so we instead as a society ration. But rationing, by whatever means, imposes costs on people. Some die, others live much poorer qualities of life for longer. Al Roth the nobel laureate has written on these and other situations where markets are possible, indeed have existed, but are deemed now repugnant.  The reality is that these markets are illegal not for any economic reason but for reasons of social or political pressure. These pressures of course change over time. Cultures mutate and mores change.

There is a call to make ticket touting illegal in Ireland.  For sure it would be popular. But in any such restriction there will be costs imposed on someone.  A mature debate on the costs as well as on the social actual or perceived benefits would be desirable. Much of the analytical evidence suggests that the call for ticket reselling to be made illegal comes from the originators of the event, the promoters. Seeing a loss of potential profit that they could have made had they priced correctly, they not unnaturally resent same. But we should not make policy based on dog in the manger policies.

 

An extended version of an Irish Examiner column 29 August 2016.http://www.irishexaminer.com/business/time-to-debate-the-cost-of-banning-ticket-touting-418290.html

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