12. The Ticket Scalper

0:00Chapter 12 The Ticket Scalper Webster's Dictionary defines scalper as one who buys and sells in order to make quick profits, and scalping as cheating, defeating and robbing. The latter definition is the one used by the public in its hostility toward ticket scalpers. The reason for this condemnation is easy to discern. Imagine a theater-goer or sports fan on the eve of the big event arriving and finding, much to his consternation, that he must pay $50 for a $10 seat. He thinks that these outrageous prices are charged by scalpers, who purchase tickets at normal prices and then deliberately withhold them until people are so desperate that they were willing to pay any asking price.

0:54An economic analysis, however, will show that the condemnation of the ticket scalper is unjust. Why does scalping exist? A sine qua non of scalping, a necessary condition for its existence, is a fixed, invariable supply of tickets. If the supply could increase with increased demand, the scalper would be totally displaced. Why would anyone patronize a scalper when he could purchase additional tickets from the theater at the printed list price? A second necessary condition is the appearance on the ticket of a list price. If a stipulated price did not appear on the ticket, scalping, by definition, could not occur.

1:41Consider shares of stock bought and sold on the New York Stock Exchange, on which there is no printed price. 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. Why do theaters and ballparks print ticket prices? Why not allow them to be sold at whatever price the market will bring, the way wheat is sold in the Chicago futures market, or shares of stock in the stock market? If they were, scalping would be eliminated. Perhaps the public looks upon printed prices on tickets as a great convenience, perhaps it helps people to budget, plan vacations, etc.

2:28Whatever 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. Thus, the second necessary condition for scalping exists by popular demand. The third condition, which must be present, is that the ticket price chosen by management be lower than the market clearing price. The price at which the number of tickets people are willing to buy is just equal to the number of seats available. Stipulated prices lower than the market clearing price are open invitations to ticket scalping. For at the lower price, there are more customers willing to buy tickets than there are tickets available.

3:17This imbalance sets in motion forces which tend to correct it. Would-be purchasers begin to try harder to obtain tickets. Some of them become willing to pay more than the price printed on the ticket. Prices rise, and the original imbalance is corrected as these higher prices cause a drop in demand. Why do theater or ballpark managers set their ticket prices below the market clearing price? For one thing, lower prices invite a large audience. Long lines of people waiting to enter a theater or ballpark constitutes free publicity. Theory. In other words, management forgoes higher prices in order to save money it might have had to spend on advertising.

4:09In addition, managers are loath to raise ticket prices, even though they would have little difficulty selling them for a big event or special movie for fear of a backlash. Many people feel that there is a fair price for a movie ticket, and managers are responsive to this feeling. Thus, even though they might be able to charge higher than usual prices for a movie like The Godfather, they choose not to. They know many people will refuse to patronize the theater at a later time, feeling that the management took advantage of the public during the showing of this very popular movie. There are several other motivations, less compelling, for keeping prices fixed at below equilibrium levels.

4:58And together, they ensure that this pricing policy, the third condition necessary for scalping, will continue. 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. The problem becomes one of rationing the few tickets among the many claimants. It is in the solution to this problem that the ticket scalper plays his role. Suppose that during the baseball season the price of an average ticket is $5 and the ballpark is filled to its capacity of $20,000 for every game. However, for the big game at the end of the season, 30,000 people want tickets.

5:48How will the 20,000 tickets be distributed or rationed among the 30,000 people willing The two basic ways of rationing goods that are in short supply have been defined by economists as price rationing and non-price rationing. In price rationing, prices are allowed to rise. This, in our opinion, is the only fair way to ration a commodity when demand exceeds Why? In the example above, the average price of a ticket may rise to $9 if that is the price at which there will be only 20,000 people ready and willing to buy the 20,000 tickets.

6:38The specific procedure through which this increase of $4 in the average price of a ticket takes place varies. Ticket speculators, or scalpers, might be permitted to buy all the

7:22really 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. In non-price rationing, prices are not allowed to rise in order to decrease the demand to the level of the available supply. Instead, other techniques are employed to attain the same end. The management may distribute the tickets on a first-come, first-served basis. It may employ other types of favoritism in order to narrow down the market.

8:09Nepotism, selling the tickets only to relatives or friends. Secrets, racism, selling them to only certain racial groups, sexism, selling them only to males, certain age groups may be singled out and all others barred, or perhaps war veterans or members of certain political parties may be given special privileges. All these non-price rationing techniques are discriminatory and arbitrarily favor some groups over others. Consider a typical first-come first-served, FCFS, method, since this is the type of system most widely used and the one usually thought to be fair.

8:55Though tickets are not scheduled to be sold until 10 a.m. of the day of the event, hopeful customers line up outside the box office long before. Some join the line at the crack of dawn, some even begin the night before. FCFS is thus discriminatory against those who find waiting in line particularly onerous, those who cannot take a day off from work to wait in line, or those who cannot afford to hire servants or chauffeurs to wait in line for them. Does price rationing and therefore ticket scalping favor the rich? An equivocal answer must be given. From one perspective, ticket scalping helps the lower and middle class and hurts the rich.

9:43Assuming that the lowest income class includes more people who are unemployed or marginally employed, they have time and opportunity to wait in line. Even if employed, they do not lose as much as others when they take time off from work. For these people who have few options, ticket scalping provides employment and business opportunities. There is no other pursuit in which a poor person can begin his own business with so little capital. In the case stated above, all that is needed is $50 to buy 10 $5 tickets. When and if these are resold at $45 each, a profit of $400 is gained.

10:31Members of the middle class are helped as well, for these people are less likely to have time available for waiting in ticket lines. It is more costly for them in terms of income lost to take time off from work than for a member of the lower class. It is prudent for the member of the middle class to buy his ticket from the scalper for $45 rather than wait in line and lose far more, which he might have earned had he gone to work. In short, ticket scalping allows people in the lowest income brackets to serve as the paid agents of people in the middle class, who are too busy to wait in line for cheap tickets. Rich people have servants who can wait in long lines for them, and therefore do not need scalpers.

11:21In one case, however, the ticket scalper can help even the rich, when the scalper, who Who is a specialist can do the job for less than it would cost the rich man to use a servant for the task. It should occasion no surprise that ticket speculation can benefit all people. The market is not a jungle where people can only benefit at the expense of others. Voluntary trade is the paradigm case of mutually beneficial action. If the scalper's profit margin is less than what it would cost the rich man to use a servant, he can buy the ticket directly from the scalper, cut out the middleman's servant, and save the extra money.

12:07From another perspective, however, price rationing and ticket scalping favor the rich by ensuring that they will find it easier to purchase tickets at the high market price, while the 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. Imagine the quality of life and the chances for survival if each of us was limited to what we could produce ourselves.

12:54The specter is frightening. Our lives depend on trade with our fellows, and most, if not all, of the people presently living would perish if the monetary system fell. The degree to which we do not permit money to ration goods, the degree to which we do To not allow the rich to obtain a greater share of the goods of society in proportion to their monetary spending, is the degree to which we allow the monetary system to deteriorate. It is, of course, unfair to allow the rich to obtain a greater share of goods and services, to the degree that many of them amass their fortunes not through the market, but because of government aid.

13:41However, eliminating the monetary system in order to rid it of illicitly gathered fortunes would be like throwing out the baby with the bathwater. The answer lies in directly confiscating the ill-gotten wealth. When wealth is earned honestly, there is nothing inappropriate about being able to receive a greater share of goods and services, and it is essential to the preservation of the monetary system. The scalper, by facilitating the price rationing of tickets, is instrumental in assisting the rich in obtaining the rewards of their efforts.