Russ Roberts

Ticket Prices and Scalping

EconTalk Episode with Russ Roberts
Hosted by Russ Roberts
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EconTalk host Russ Roberts talks about scalping and visits AT&T Park hours before Major League Baseball's All-Star Game to talk with a scalper, a merchandiser, a fan, and the police about prices, tickets, baseball and the law.

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0:36Intro. Economic fieldwork at Baseball All-Star Game. Scalping, gouging sometimes judged as immoral or illegal, but both parties better off. Some cities have made it legal, some teams have created websites to make it easier for ticket-holders to buy and sell tickets. E-bay, StubHub make it silly to try to stop it on the streets. Interview a few hours before the game. Scalper Alex, who doesn't like being called a scalper because he believes he is doing something different from what is traditionally called scalping. Unlike a traditional scalper who buys low and sells, high, Alex works with ticket brokers who buy tickets at original price and then try to sell them at higher prices. Ticket brokers for SF Giants game bought lots of season tickets.
3:32Two scalping stories. 1. Russ and wife wanted to go to musical Les Mis but couldn't find tickets seated together. Scalpers had two non-together seats but wanted $200. Offered someone waiting for a friend $100, but was refused.... 2. Taking son to a Cardinals game in St. Louis. Holds up two fingers in a V indicating wanting two tickets....
7:072007 SF All-Star Game. Interview with Alex, retailer, ticket broker representative. Takes tickets on consignment, deals in quantity, has developed clientele. Have to make character judgments to buy tickets from a stranger--what if ticket is not valid? Anecdote: Ticket scalper claims game is sold out and says "Why would I lie to you?" Presentation matters for Alex, gives people his business card, dresses nicely, looks people in the eye, becomes knowledgeable about the facility and about the particular game. Wants repeat customers, so no reason to lie. 44,000 tickets doesn't mean that many seats--some standing room only. Box office price $145 for standing room, high end seats around $400. On open market over $3000/ticket. Premiums for tickets somewhat before the game, after game worth 0; try to catch market on the downswing. Typically prices dip just before the game. Market will clear at about an hour past the printed time of start of game. After that, customers will object that the game is underway. Alex does also work the street. Most he's sold tickets for. Signing up with hard work for tickets to small-venue events. "Beyond the Sea," San Francisco, Kevin Spacey singing. Opportunity cost--is it worth it to see the show if the market price is very high? Munger podcast. Pearl Jam. Tickets so far for this game were primarily only to season ticket holders. Lottery for standing room only areas--Alex won opportunity for two sets of tickets. Sold home run derby tickets and traded others for All-Star game tickets. Discretion important for a big game like this. Law different from legislation--Boudreaux podcast. Has website reselling changed the experience on the street? Has increase in information narrowed the price range?
26:07Plastic sleeve lanyards salesman. Free spot viewer (outside the stadium, allowed to go in for three innings to observe game). Would pay maybe $100, would have to wait till fifth inning to get one for that price. Home run derby legitimate ticket. Alex and Russ outside StubHub, where you can pick up a ticket close to when the game starts, 1/3 mile from game. A lot of venues price their tickets such that it's worthwhile for brokers to buy them up. Why do artists let brokers make all that money? Pricing the venue efficiently. On efficiency grounds, different rows should have different prices. "Music's for the people" is one answer to why artists allow venues to ignore this and sell all tickets for one price. Alternative answer: Earl Thompson at UCLA--a half-filled theater where the front is empty is undesirable both because of people sneaking into seats and also to artist, who wants front filled. Baseball teams have monopoly which may explain it. SF Giants are the people's team both in spirit and also by legal structure of how they are paid for via taxpayer money. Barbara Streisand and Frank Sinatra charged market prices. Season ticket sales offer sellers some assurance.
36:55Police officers, security guards: Is it legal to sell tickets at more than the box office price? Various answers: "Yes." "Can't comment on it." "People do it every day." "I don't know." Summary, free spot, knot-hole gang, lets Giants feel better about charging high prices. Alex's tickets sold.

COMMENTS (17 to date)
cljo writes:

Thanks Russ. I like the "in the field" podcasts. I wanted to hear more about the rise of anti-scalping laws, their justification, and why they seem to be breaking down. I suspect that the internet provides a way to allow market-pricing while still arguing that the opportunity is reaching a maximum number of people.

Brad Hutchings writes:

cljo, I think the Internet, ebay, and the recent phenomenon of speculation in trendy goods but limited supply goods -- PlayStation, Wii, iPhone, Nike shoes -- has given us a better context in which to view ticket scalping. Anyone over 30 who has been to lots of sporting events can remember when it was really shady. Now, I wouldn't think anything of selling a couple extra tix or trading a block of 4 mediocre seats for 2 nicer seats a half hour before kickoff. Well, I'd make sure there are no uniformed officers within earshot, that's all.

Alon Honig writes:

I have to say that I found this new format quite refreshing, and ticket scalping is an awesome economics topic. However overall I feel less moved by this new format. Dare I say that this podcast has a bit of a Michael Moore'ish feel to it. Its not to say that the podcast was single sided and overcharged with emotion. Quite the opposite, your podcasts truly sustain my dream that one day the populace will find economics cool. Its just that Russ does the vast majority of the talking, depleting an appealing element in his former podcasts. A second voice and opinion keeps him and the topic energized if need be it. Furthermore, the element of humor, well used and some say abused by Mr. Moore was truly lacking in this podcast in comparison to former ones. This might not be an element of this new format, even Larry David cannot be funny all the time, however it was missed. My final minor quibble with this podcast was that there was no revelation about our common perceptions of everyday life. This podcast gives me absolutely no ammo to fire at the sociologist professor of a father that I have. Even if you don't change the format this podcast will still be one of the biggest highlights of my week. :)

Eric Lamberton writes:

I thouroughly enjoyed the new format for this podcast. Although it was only the venue which was featured, it helped that I am a SF Giants fan. The social taboo of ticket scalping is a fascinating topic to discuss. I wonder, once the tickets are purchased do they therefore become the personal property of the bearer, who should have the right to dispose of them as he or she wishes or a license which can be revoked? Do tell.

Aditya writes:

I really enjoyed the "in the field" format. I think it's a great idea to do these kinds of podcasts to talk about how everyday people perceive economics. Other ideas include "How gas prices are determined at the pump" or even "How sports betting markets work". Keep up the good work!

Greg Hills writes:

I thought this podcast was a nice change of pace. I enjoyed hearing from a type practitioner I didn't expect to encounter in an EconTalk podcast. I would welcome the occasional offbeat episode in the future.

Nicholas writes:

Hey Russ, thanks for taking time out of your family vacation to talk to us. I really did like the interview style. I would've liked to hear more theory, but it was kind of hard when the people you were talking to didn't seem to get it when you talked theory to them. One possible solution that occurs would be to add theory commentary in post production so you could expand on some of the ideas without making your interviewees cross-eyed.

Love the show, thanks again,

John writes:

This has been irking me for a week now and I’ve just got to ask!

On a number of occasions during the podcast you would emphasise that the person willing to pay more for a ticket ‘wanted it more’, and you appeared to be implying that therefore the scalping market was ensuring that utility/welfare was maximised. I was a bit unsure about the soundness of this argument, however. Surely a wealthy person spending $1000 on a ticket would face a far lower impact on their total income than a low-income person spending the same amount? Arguably, since they both sacrifice the same opportunity costs (in other goods purchasable for $1000) their utility is identical, but this requires the relative impacts of the spending to be ignored. Now, for a wealthy individual it may be entirely possible to spend $1000 on a ticket without impacting their ability to purchase other items in any noticeable way – the ‘real’ opportunity cost to them in very small. Yet for the low income individual, the purchase of the same ticket will likely cause them to rein in their spending elsewhere in a ‘significant’ way, or may even cause them financial hardship. So, surely, if a low-income person was willing to spend $1000 on the ticket, that suggests that the ticket’s utility to them is in fact far greater than to the wealthy individual?

Of course, the current system of banning scalping is not a solution, since it isn’t enforced and is only a partial resolution of the problem. Though very unlikely to emerge directly, a ‘means-tested’ subsidy for tickets for lower income families (which could then only be used by that family) would seem more sensible if teams aimed to really act on their desire to be ‘the people’s team’.

So I’m curious – did I misunderstand what you were implying, or have I’ve gotten my economics all out of whack?

Russ Roberts writes:

John,

I was trying to say something simple and maybe didn't say it well. If someone pays $10 for a ticket and finds that its value on the street is now $1000 and sells it for $1000, the world is a better place than if the police stopped the transaction from happening. It doesn't matter whether the person selling or buying the ticket is rich or poor. The seller valued the $1000 more than seeing the game and the buyer valued seeing the game at more than $1000. So by letting the transaction take place, both people are better off.

John writes:

Ah, it seems I extrapolated rather too much from what you said. You are of course completely correct that the trade you describe does make both parties better off, since the voluntary seller must have necessarily valued the ticket at less than $1000 and the voluntary buyer at at least $1000. My query then, which I hope you could clarify, stems from what I was getting at in my initial question.

You asked during the podcast why a sports team, for example, would not charge the market rate. At the end of the podcast a number of suggestions were made, but you didn’t seem to settle on one as a very solid and likely candidate. This despite the fact that you briefly mentioned what I felt was the most obvious and clear-cut answer: that sports teams face a very strong impetus to be “the people’s team”. Essentially, pricing at the market rate, or allowing scalpers to do the same, will allow wealthier individuals to outbid lower-income individuals for tickets. As I tried to tease out in my previous question, this would make both the buyer and seller ‘better off’, but this strategy does not necessarily maximize the total utility of the fanbase, which seems to be the actual criteria that sports teams portray themselves as wanting to meet. With this in mind, it makes sense that these teams offer under-priced and flat-rate ticket prices and discourage or ban scalping – this a 3rd or 4th best solution to their maximization criteria. Obviously they avoid the optimum solutions (or even some 2nd best solutions) due to the costly logistics and potential ill-will that things like means-tested ticket allocations would engender. In the end, everyone ends up in a mediocre position, with efficiency shot to hell and fanbase welfare barely increased, but the team can at least claim to have made an effort to do what their fans wanted (in the same way a politician might try to pass doomed legislation in order to satisfy their support base that they are ‘trying their best’).

Again, I’m pretty sure this makes sense and it seems quite straightforward and obvious to me that this would be their motivation. I guess I’m wondering then why this wasn’t seized on during your discussion. Is there a solid counterargument or alternative argument that better explains this behaviour?

Nicholas Conrad writes:

John,

You are forgetting that this question applies to a wide strata of entertainment venues. Sports teams are one example, but rock concerts, live theatre, opening night at a movie theater, etc... It would seem ungainly to have a separate answer for all these different kinds of entertainment to have come up with the same kind of pricing structure. Steven E. Landsburg proposes a possible answer in his book "The Armchair Economist" which is that a younger audience is more likely to buy merchandise from such events, so to sell the merch the price of admission has to be low enough for teenagers to afford... I guess one more possible solution to add to the list.

As for your previous question, I think it is useful to recognize that like all other goods, cash's utility suffers from diminishing returns; this is a problem I have been puzzling over for a few years now. However, I have been unable to come up with a better metric.

Let us imagine that there is an absolute measure of desire, we'll call it a happy point. Suppose a poor person wants to see the game 100 happy points worth. However, fixing his car which has recently stopped running will give him 200 happy points, and cost $1,000. Meanwhile, a very wealthy man values a dollar very little, having an extra $1,000 in his bank account only pleases him 10 happy points worth. Seeing the game will give him 12 happy points of satisfaction. Now it is clear in this example that the rich man values both the game and the cash far less then the poor man, but was the trade bad?

The dollar is just the nearest real world approximation to measure wants, which is why economists try to put everything into that metric, and why non-economists think economists only care about money.

John writes:

Nicholas,

On your first point, I would certainly feel that one of the greatest skills of any theorist is the ability to know where to draw the likely borders of their theory’s relevance. Bespoke theories are essentially case-studies, which can be fascinating and illuminating, but aren’t particularly useful as sources of ‘science-like’ theories – whether or not bespoke theories are the best an economist can reasonably hope for in many cases is a debatable point.

However, I do think that in this particular instance a border can be drawn around sports events (specifically American, ‘urban’ team sports, of which baseball seems the ultimate example). I would suggest that the sense of being part of the community and owing the local, working-class members of the fanbase a great deal is very well ingrained into Major League baseball’s mythos, and the teams are fearful of being compared to this ideal and found terribly wanting – hence the fudged ‘solution’.

Your second point seems to match perfectly with mine. Indeed, I was wondering if I should include some hard numbers of ‘utils’ (my personal favourite points of happiness) in my example. You seem to let economists off the hook at little, however. I think that these diminishing return are not something that can be shrugged at due to the need to ‘estimate’ through prices – an estimator can be of variable quality, and it seems in this example, and when trying to answer this question, that prices are a very poor estimator indeed. For example, your question about the trade being ‘bad’ or not is illuminating: from the information you gave it might be tempting to state that the trade is ‘good’ in that the rich person increased their happiness by two points, but perhaps not ‘best’ since if we could get that ticket into the hands of the poorer person we’d boost overall happiness by a far greater amount (and, indeed, the richer person wouldn’t suffer in any significant way). Then you can simply say ‘well how is that going to be achieved?’ which is undeniably a very difficult and complicated question to answer convincingly. Nonetheless, it is disingenuous (if not downright intellectually dishonest) to conclude that prices are therefore a reasonable estimator by which to make conclusions about the outcomes of this transaction and the motivations of the participants (specifically the sports teams). If anything, this example suggest that using prices actually ends up answering quite a different (and less interesting) question.

Nicholas Conrad writes:

I claim to have no special or privileged knowledge in this area, however common sense, and a pinch of skepticism gives me the feeling you are creating a post hoc justification for singling out sports teams. Do not community theatre patrons feel ownership of their entertainment when it is put on in publicly owned venues? Why cannot season ticket holders at a repertory theatre feel a connection to their cast? Then too, if you wish to maintain that sports are special, you must explain how all other entertainment settled completely independently on an identical price structure. Seems an unlikely coincidence to me, but I'm just guessing in the dark.

Yes please, I would be curious to see your counter-example... First we'll have to figure out how to convert between utils and happy points ;)

But seriously, I'm afraid I didn't properly preface my model... I meant the poor person was scalping his ticket, so to maximize happy points, the poor man doubles his by skipping the game and fixing his car, and the rich man in better off as well.

As for you calling me a liar, all I can say is I think you are woefully underestimating the usefulness of the money model; while not absolute, even at extremes it does a wonderful job of measuring relative wants.

Furthermore, I think you will find that the returns diminish at a very small rate, so that, excluding the far ends of the curve, for most people in the US dollars are approximately equal in value. That is why stores are able to post prices instead of having to haggle with each customer individually. If dollars were as variable in value as you seem to think, posted prices would not be feasible.

John writes:

Nicholas,

Allow me first to make it clear that I had no intention of calling you a liar, and regret my perhaps unwisely severe and unclear language. I had meant the terms I used to be forceful but they were not intended whatsoever to be an attack on you. Instead I meant that a theorist who insisted in all instances that prices are excellent estimators of utility (which you yourself made clear you were not) would deserve that kind of a response. I should have tempered my language and made that far more clear and explicit – lazy writing on my part.

You made a very fair point regarding the potential interpretation of my narrowing of focus as ‘post hoc justification’. I highlighted baseball, specifically, because I felt that that it was most obviously an area in which scalping is heavily criticised and in which attendees are likely to be both quite poor and quite rich. I was too confident in my claims to be able to stake it out as a separate field – perhaps it would be more fruitful to view it as an illuminating extreme, in the same way that the opposite end (Barbara Streisand tickets, for example) would be the other extreme in which tickets are charged close to market rates.

With this perspective the argument I am making is that the reason that these markets are nominally the same (as you say, ‘all other entertainment settled completely independently on an identical price structure’) but in reality quite divergent (tickets are generally below market prices in sports, or generally equal to market prices in diva concerts) is that in sport teams are keen avoid being seen as allowing the rich to outbid the poor, while the divas are not particularly concerned. The reasons why this might be the case are subtle and no doubt deserve strong evidence on my part before I could expect you to accept them without dispute. Alas, I cannot provide you with hard data, though it does seem reasonable that this would be the case. Regardless, if one were to accept this initial thesis, then the rest of the argument falls neatly into place. A (poor) sports fan correctly believes that richer fans could outbid them for tickets despite gaining lesser utility from attending the game. As you suggested, the poorer person could go and use that unspent cash to gain utility from some other source, but if that other source would have made him better off than the tickets, why would he have been in the market in the first place? So it seems that he would necessarily gain less utility from this alternative transaction.

You also stated that I was overly critical of the usefulness of ‘the money model’, and that ‘excluding the far ends of the curve’ prices work just fine as estimators of utility. The point I was trying to make is that the situation of ticket prices for sports teams is motivated not by a belief that the market will consist overwhelmingly of average earners, but by the fear that there will be a large contingent of rich people who can outbid everyone else. As such, these extremes are vital to properly answering this particular question.

Nicholas Conrad writes:

Ah, I see. Yes, I took your earlier statements in a far broader context then they were intended, and I can see how your question is quite applicable.

However, the market price still is able to give relative measures of wants. We may not ever know if the poor man or rich man actually want to see the game more in 'real' util terms. We can say that the poor man is more willing to forgo that enjoyment in lieu of the opportunity cost of the market price for the ticket. Assuming the poor man is rational when he does this, the cash will generate greater utils for him, or else he will not make the exchange. Likewise for the rich man, the trade will increase his utils, or else he will not buy the ticket. So without knowing the exact values each ascribes to the two halves of the transaction we can still know it is maximizing utils for both.

The only way I can see it mattering that the rich man values both less is if you are proposing somehow to increase the sum utils further by taking the cash from the rich man, and letting the poor man retain the ticket anyways. Which policy I would not support for myriad reasons.

nr writes:

I agree with the first Nicholas's comment. Nice change of format (though not a substitute for the usual format), fascinating topic, but I too would have been interested in additional info on scalping laws in the U.S. and elsewhere, i.e., their development and justification. However I thought you touched on most of the economic issues, such as possible reasons why ticket prices are so low. (Your subject had some interesting ideas on that.)

I think experimentation with the format is great, though nothing beats an interview with a smart economist, particularly one who upends conventional wisdom, like the talk with Ed Leamer, whose paper on "the World is Flat" was also fantastic.

LJ writes:

Although I disagree with a very large percentage of your economic views, I still very much enjoy the podcast and especially the one on ticket scalping.

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