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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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Volume 13, Issue 2 (Sep 2013)

Issues

Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

Ticket Pricing and Scalping: A Game Theoretical Approach

Nelson Sá
  • Corresponding author
  • Department of Economics, Vassar College, 124 Raymond Ave., Poughkeepsie, NY 12603, USA
  • Email:
/ Evsen Turkay
  • Department of Economics, Vassar College, 124 Raymond Ave., Poughkeepsie, NY 12603, USA
  • Email:
Published Online: 2013-09-06 | DOI: https://doi.org/10.1515/bejeap-2013-0042

Abstract

Ticket scalping is frequently related to the economic puzzle of underpricing by promoters. It is also disputed whether event promoters benefit from scalper participation or not. Our article explores two questions: can promoters benefit from scalpers’ activities and what are the resulting consumer welfare effects? We address these questions by developing a three period game where the secondary market is supported by an auction mechanism, interacting with primary market decisions. We find that participation by scalpers can lead to underpricing in the primary market and that this may benefit small or credit-constrained promoters. This requires the scalper’s discount factor to be higher than the promoter’s discount factor. The necessary premium on the discount factor increases with the fraction of early buyers and decreases with market size. Finally, the effect of scalper participation on aggregate consumer welfare is shown to be positive for a large enough market size or discount rate for the scalper.

Keywords: secondary markets; scalping; ticket pricing; consumer welfare

References

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About the article

Received: 2013-02-28

Accepted: 2013-08-20

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.


Citation Information: The B.E. Journal of Economic Analysis & Policy, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2013-0042.

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