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NOTE 12. The Ticket Scalper

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Chapter 12 The Ticket Scalper

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Webster's Dictionary defines scalper as one who buys and sells in order to make quick profits,

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and scalping as cheating, defeating and robbing.

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The latter definition is the one used by the public in its hostility toward ticket scalpers.

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The reason for this condemnation is easy to discern.

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Imagine a theater-goer or sports fan on the eve of the big event arriving and finding,

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much to his consternation, that he must pay $50 for a $10 seat.

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He thinks that these outrageous prices are charged by scalpers, who purchase tickets at normal prices

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and then deliberately withhold them until people are so desperate that they were willing to pay any asking price.

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An economic analysis, however, will show that the condemnation of the ticket scalper is unjust.

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Why does scalping exist?

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A sine qua non of scalping, a necessary condition for its existence, is a fixed, invariable supply of tickets.

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If the supply could increase with increased demand, the scalper would be totally displaced.

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Why would anyone patronize a scalper when he could purchase additional tickets from the theater at the printed list price?

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A second necessary condition is the appearance on the ticket of a list price.

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If a stipulated price did not appear on the ticket, scalping, by definition, could not occur.

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Consider shares of stock bought and sold on the New York Stock Exchange, on which there is no printed price.

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No matter how many are bought, how long they are held, or how high the price at which they are resold, they cannot be scalped.

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Why do theaters and ballparks print ticket prices? Why not allow them to be sold at whatever price the market will bring,

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the way wheat is sold in the Chicago futures market, or shares of stock in the stock market?

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If they were, scalping would be eliminated.

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Perhaps the public looks upon printed prices on tickets as a great convenience, perhaps it helps people to budget, plan vacations, etc.

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Whatever the reason, the public must prefer prices to be stipulated. If it did not, managers and producers would find it in their interest not to do so.

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Thus, the second necessary condition for scalping exists by popular demand.

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The third condition, which must be present, is that the ticket price chosen by management be lower than the market clearing price.

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The price at which the number of tickets people are willing to buy is just equal to the number of seats available.

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Stipulated prices lower than the market clearing price are open invitations to ticket scalping.

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For at the lower price, there are more customers willing to buy tickets than there are tickets available.

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This imbalance sets in motion forces which tend to correct it.

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Would-be purchasers begin to try harder to obtain tickets.

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Some of them become willing to pay more than the price printed on the ticket.

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Prices rise, and the original imbalance is corrected as these higher prices cause a drop in demand.

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Why do theater or ballpark managers set their ticket prices below the market clearing price?

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For one thing, lower prices invite a large audience.

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Long lines of people waiting to enter a theater or ballpark constitutes free publicity.

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Theory.

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In other words, management forgoes higher prices in order to save money it might have

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had to spend on advertising.

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In addition, managers are loath to raise ticket prices, even though they would have little

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difficulty selling them for a big event or special movie for fear of a backlash.

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Many people feel that there is a fair price for a movie ticket, and managers are responsive

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to this feeling.

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Thus, even though they might be able to charge higher than usual prices for a movie like

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The Godfather, they choose not to.

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They know many people will refuse to patronize the theater at a later time, feeling that

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the management took advantage of the public during the showing of this very popular movie.

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There are several other motivations, less compelling, for keeping prices fixed at below

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equilibrium levels.

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And together, they ensure that this pricing policy, the third condition necessary for scalping, will continue.

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In taking a closer look at the positive function fulfilled by the ticket scalper, it has been shown that when tickets are priced below the equilibrium level, there are more customers than tickets.

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The problem becomes one of rationing the few tickets among the many claimants.

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It is in the solution to this problem that the ticket scalper plays his role.

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Suppose that during the baseball season the price of an average ticket is $5 and the ballpark

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is filled to its capacity of $20,000 for every game.

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However, for the big game at the end of the season, 30,000 people want tickets.

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How will the 20,000 tickets be distributed or rationed among the 30,000 people willing

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The two basic ways of rationing goods that are in short supply have been defined by economists

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as price rationing and non-price rationing.

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In price rationing, prices are allowed to rise.

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This, in our opinion, is the only fair way to ration a commodity when demand exceeds

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Why? In the example above, the average price of a ticket may rise to $9 if that is the

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price at which there will be only 20,000 people ready and willing to buy the 20,000 tickets.

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The specific procedure through which this increase of $4 in the average price of a ticket

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takes place varies. Ticket speculators, or scalpers, might be permitted to buy all the

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really be the result of simple arithmetic, for if an average price of $9 is necessary to reduce the demand for tickets to the available $20,000 and if $18,000 of them are sold at $5 each, then the remaining $2,000 must be sold at $45.

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In non-price rationing, prices are not allowed to rise in order to decrease the demand to the level of the available supply.

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Instead, other techniques are employed to attain the same end.

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The management may distribute the tickets on a first-come, first-served basis.

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It may employ other types of favoritism in order to narrow down the market.

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Nepotism, selling the tickets only to relatives or friends.

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Secrets, racism, selling them to only certain racial groups, sexism, selling them only to

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males, certain age groups may be singled out and all others barred, or perhaps war veterans

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or members of certain political parties may be given special privileges.

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All these non-price rationing techniques are discriminatory and arbitrarily favor some groups

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over others.

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Consider a typical first-come first-served, FCFS, method, since this is the type of system

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most widely used and the one usually thought to be fair.

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Though tickets are not scheduled to be sold until 10 a.m. of the day of the event, hopeful

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customers line up outside the box office long before.

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Some join the line at the crack of dawn, some even begin the night before.

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FCFS is thus discriminatory against those who find waiting in line particularly onerous,

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those who cannot take a day off from work to wait in line, or those who cannot afford

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to hire servants or chauffeurs to wait in line for them.

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Does price rationing and therefore ticket scalping favor the rich?

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An equivocal answer must be given.

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From one perspective, ticket scalping helps the lower and middle class and hurts the rich.

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Assuming that the lowest income class includes more people who are unemployed or marginally

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employed, they have time and opportunity to wait in line.

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Even if employed, they do not lose as much as others when they take time off from work.

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For these people who have few options, ticket scalping provides employment and business opportunities.

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There is no other pursuit in which a poor person can begin his own business with so

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little capital.

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In the case stated above, all that is needed is $50 to buy 10 $5 tickets.

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When and if these are resold at $45 each, a profit of $400 is gained.

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Members of the middle class are helped as well, for these people are less likely to

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have time available for waiting in ticket lines.

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It is more costly for them in terms of income lost to take time off from work than for a

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member of the lower class.

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It is prudent for the member of the middle class to buy his ticket from the scalper for

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$45 rather than wait in line and lose far more, which he might have earned had he gone

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to work.

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In short, ticket scalping allows people in the lowest income brackets to serve as the

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paid agents of people in the middle class, who are too busy to wait in line for cheap

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tickets.

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Rich people have servants who can wait in long lines for them, and therefore do not

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need scalpers.

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In one case, however, the ticket scalper can help even the rich, when the scalper, who

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Who is a specialist can do the job for less than it would cost the rich man to use a servant

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for the task.

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It should occasion no surprise that ticket speculation can benefit all people.

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The market is not a jungle where people can only benefit at the expense of others.

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Voluntary trade is the paradigm case of mutually beneficial action.

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If the scalper's profit margin is less than what it would cost the rich man to use a servant,

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he can buy the ticket directly from the scalper, cut out the middleman's servant, and save

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the extra money.

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From another perspective, however, price rationing and ticket scalping favor the rich by ensuring

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that they will find it easier to purchase tickets at the high market price, while the

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In the chapter on the importer, a defense will be made of a monetary economy because it enables us to specialize and to benefit from the division of labor.

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Imagine the quality of life and the chances for survival if each of us was limited to

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what we could produce ourselves.

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The specter is frightening.

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Our lives depend on trade with our fellows, and most, if not all, of the people presently

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living would perish if the monetary system fell.

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The degree to which we do not permit money to ration goods, the degree to which we do

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To not allow the rich to obtain a greater share of the goods of society in proportion

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to their monetary spending, is the degree to which we allow the monetary system to deteriorate.

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It is, of course, unfair to allow the rich to obtain a greater share of goods and services,

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to the degree that many of them amass their fortunes not through the market, but because

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of government aid.

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However, eliminating the monetary system in order to rid it of illicitly gathered fortunes

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would be like throwing out the baby with the bathwater.

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The answer lies in directly confiscating the ill-gotten wealth.

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When wealth is earned honestly, there is nothing inappropriate about being able to receive

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a greater share of goods and services, and it is essential to the preservation of the

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monetary system.

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The scalper, by facilitating the price rationing of tickets, is instrumental in assisting the

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rich in obtaining the rewards of their efforts.