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About the article
Published Online: 2013-09-06
The distinction between a broker and a scalper is straightforward. The former is an officially licensed business, whereas the latter acts informally, frequently on an individual basis. Nonetheless, their conduct is fundamentally identical in that both seek a profit through secondary market exchanges. For the remainder of the article, we shall treat both agents in the same way.
New York State laws illustrate this point well. Prior to 1984, resale for more than two dollars above face value was illegal in New York. This limit was gradually increased until the state introduced a 3-year experiment in 2007 completely deregulating ticket resale.
In a study of 103 rock concerts held in the summer of 2004, Leslie and Sorensen (2009) show that most events offered tickets at only two price levels. Ideally, the promoter would like to employ price discrimination to its fullest possible extent, precluding the scalper from exploring any arbitrage opportunities. Transaction costs in operating secondary markets are one possible reason why this does not always happen. Negative reputation effects might also discourage the promoter from engaging in excessive discrimination.
For an analysis of how a monopolist can explore individual demand uncertainty in ticket markets, see for instance Courty (2003b).
Krishna (2009) shows that first-price and second-price sequential auctions yield the same results for sellers. Besides, they both entail the same level of analytical complexity. Weber (1983) also shows that simultaneous and sequential auctions with risk-neutral bidders holding independent private values yield the same expected payoff as long as there is no time discounting within the auction period (the third period in our model).
Heterogeneous discount rates for buyers might enable their endogenous allocation to primary and secondary markets. However, it would not be possible to uniquely associate each group to one particular type of discount rate, much less with uniformly distributed sub-populations, thus compromising the analytical tractability of this model.
It should nonetheless be noted that resale dynamics are likely to vary depending on whether a single event (our example) or a season ticket are involved. The ability to resell is frequently more valued in the second case since the ticket holder may not be able or willing to attend every individual game.
This vital principle may be found in Gold v. DiCarlo, 235 F. Supp. 817 at 820 (S.D.N.Y. 1964). There, resale prices regulation is deemed constitutionally acceptable because it affects the price the public is forced to pay, thus making it a proper venue for the exercise of state police power.