How many times in the past have you decided that you are going to get tickets to an event, only to find that they are sold out immediately?
When you realise that you were unsuccessful, you probably experienced a feeling of frustration, but understood that the demand was high, because the event itself was going to be awesome!
But then, within minutes of the tickets selling out, you also see that the same tickets for the event are being posted on ticket reselling sites at double or even triple the amount of their face value.
Unfortunately, this is a common situation where it becomes clear that the demand for these tickets was not just comprised of fans who were genuinely interested in seeing this event, but also of those individuals who have no intention of attending; only who see an opportunity to profit from those who missed out.
As I am heavily against the practice known as ‘ticket touting’, I wanted to explore the reasons why this is such an endemic issue in the industry, and if there are any ways that this profiteering could be minimised or stopped completely.
Why Does Ticket Touting Exist?
Firstly, an analysis of the economics behind how ticket touts are able to profit from ticket resale is necessary, and this centres on the basic supply and demand concept.
On the graph above, I demonstrate a typical situation from which ticket touts can profit. We have “Q” (Ticket Quantity) on the horizontal axis, and “P” (Ticket Price) on the vertical axis.
The red negatively sloping line shows the demand for tickets at this event, blue line represents the fixed supply of tickets, and the green line shows us the intercept point of the current price point (P1) against supply.
Displaying these three lines on the graph allows us to determine a number of situations:
The intersect of the demand vs supply leads to an equilibrium price point of P2 – this is higher than the P1 expected price point set by the event holder.
The intercept of the current price point P1, and the demand for the event leads us to an equilibrium quantity of tickets as Q2, meaning that there is demand in excess of the available supply for this event.
As all three lines do not intersect at the same point, this provides an opportunity for the scalper to profit.
The scalper can buy the tickets for P1, and sell for anywhere where P2 – P1 > 0, implying a profit shaded in light blue in the graph.
With this strategy, the entire surplus can potentially be extracted out of the consumer.
While it could be argued that this makes the market an efficient one, it is the redirection of profit which bothers me the most.
Why Don’t Event Organisers Increase Their Prices to this Equilibrium?
Paul Krugman (a well-known Nobel Prize winning economist) outlined three theories as to why box offices sell their tickets lower than the market clearing price in his 1999 paper “Thinking Outside the Box Office: Ticket Scalping and the Future of Capitalism.” They are:
Theory One: Demand Uncertainty
When running a concert or sport event, the organisers are unable to predict the total demand for the show, and simultaneously are not able to predict the market clearing price of an event.
Having a sold out show provides value to the organisers, and also the audience who could brag about getting tickets to an exclusive event.
Event organisers can also expect higher revenues spent on merchandising and concessions.
The low price of tickets relative to their market clearing price could be the reflection of a risk-averse coordinator trying to ensure each ticket is sold without any concerns (profit is traded for greater certainty).
Theory Two: Affordable Tickets
This theory outlines the goal of social diversity at events. By offering tickets at prices which are affordable for a greater percentage of the population, they can ensure that the audience is not represented only by wealthy individuals, but also by loyal fans regardless of social status.
This is especially true in football, where the working class man represents the largest demographic of fans.
If the football ticket prices were significantly higher than they are now, stadiums would risk a sharp fall in their attendance, and profits.
Theory Three: Heterogeneous Profit Maximising Functions
In the final theory, Krugman outlines the two main players seeking profit; the box office, and the ticket tout.
Both have different profit functions that allow them both to operate in the same market.
The box office attempts to maximise its profit over the long run, as opposed to ticket touts who often look to maximise their returns based on individual events (the short run).
The reason for the higher potential profit for the ticket tout can be explained by their lower information costs, lower transaction costs, and in some cases (where the touts wait at the entrance of the event and deal ‘cash in hand’), no taxes.
If the profit maximising functions were identical, then there would be no market for ticket touts, only competitors to the official channels.
Unfortunately, there is a mutual benefit shared between the box offices and ticket touts (like a host and its parasites) as the increased demand ensures that tickets sell out quicker for the box office (increasing the probability of a sold out show).
This means that the box office has an incentive to keep its prices low to drive the demand from touts, which the tout obviously benefits from.
Can We Fix the Issue of Ticket Touting?
In Ontario, Canada, they have taken a stance on scalping, making any sale of tickets above their face value punishable by a fine of up to CAN$5,000 for an individual, and up to CAN$50,000 for a corporation to stop this from occurring.
However, it is a widely held view among economists that ticket touting should be a legal process as it allows markets to run efficiently (extracting the maximum potential value for the resources available).
If you could call me an economist, I would not fall into this group.
If we could move to an economy where scalping was illegal, surely box offices would start to gain a greater understanding of the profit maximising prices of similar events through experience, being able to maximise their own legitimate profits.
This would see a simultaneous increase in taxes to the Government, and greater profits for the artists or sports teams that the events centre around.
This means less in the pockets of those who are just after an easy profit at the expense of people who would have otherwise attended these events anyway.
In this situation, to ensure that those fans who find that they cannot attend despite owning a ticket are satisfied, a function should be offered by the box office for the ticket seller to relist at market price for other fans to purchase this any time before the event.
I believe that this would be a far better solution in the long run as the only loser in this situation is the ticket tout.
I expect to receive a lot of opposing opinions from this blog post (as I know a few people who would consider themselves a tout), but when I then consider the fact that the £75 tickets for the England vs Australia rugby match that I wanted to attend back in 2015, and bid for, were selling at between £627 and £1,999 just moments after the tickets were announced, I just cannot defend the ticket tout.
Putting aside the benefits of an efficient, clearing market, the lack of a ticket tout would still have almost certainly assured a rugby match at full capacity.
This would be comprised of fans who genuinely want to attend the event, and who still have money in their back pocket which could potentially have been funding the next scalping project.
Isn’t it a shame that events which are supposed to entertain and make us happy, have now become a commercial exercise for some, now leaving a bitter aftertaste?
The vast profits that can be made from this practice will probably continue to increase the number of people looking to exploit this practice.
Let’s forget the economics, and start to listen to the real fans instead.