Lecture Issues in economics today - Chapter 35

Chapter 35
Ticket Brokers and Ticket Scalping

 

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Chapter Outline
• BROKERING AND SCALPING
• AN ECONOMIC MODEL OF TICKET
SALES
• WHY PROMOTERS CHARGE LESS
THAN THEY COULD
• AN ECONOMIC MODEL OF
SCALPING
• LEGITIMATE SCALPERS
 

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Brokering and Scalping

• Brokering : the act of buying a ticket and
legally selling it at a price higher than its face
value
• Scalping : the act of buying a ticket and
illegally selling it at a price higher than its face
value
• There is no economic difference between
these acts.
– A broker likely works out of an office and sells over
the phone or the internet whereas a scalper sells
on the street.
 
 
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An Economic Model of Ticket
Sales: Marginal Cost
• The key difference between producing
an event and producing a typical good
lies in the shape of the marginal cost
curve.
– For an event, marginal cost is probably
constant (a horizontal line) up to the
capacity of the facility where it becomes
quite high (a vertical line).
 

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Looking a Marginal Cost
MC

MC

MC

MC

Q
A Typical Good
 
 
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Q
An Event
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The Promoter of an Event
• The promoter of an event is the “firm” in
this model.

• The promoter
– is a monopolist for the event.
– searches for a venue
– arranges for the talent to perform
– pays the talent
– sells the tickets.
 

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The Promoter as Monopolist
P

MC

Pmonop
MR

D
Capacity

Qmonop
 

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Q

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Conclusion of the Monopoly
Model
• The monopoly price is likely to be more than
the price that would sell out the facility.
• Sellouts should be rare if promoters are profit
maximizing.
• Scalpers should have no place in a monopoly
model because scalpers only make money
when they can sell tickets above their face
value price.
 

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Searching for the Perfect Arena
P

MC

Pmonop
MR

D
Qmonop= Capacity
 

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Q

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Capacity Pricing
P

MC

Pmonop
Pcapacity

MR

D
Capacity

Qmonop
 

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Q

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Why Promoters Charge Less
Than They Could

• They may not have good information on the price
they ought to charge.
• There may be some “excitement” factor to a full
stadium that appeals to the performers and that is
worth the loss of profit.
• The performers may want a reputation of charging a
“fair price.”
• The performers may want some mechanism other
than price to separate the “real fans” from those with
money.
• Ancillary sales of shirts and other memorabilia are
important sources of revenue.
• A low price for tickets can provide word-of-mouth
advertising for them and generate interest for their

talent.
 
 
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A Model of Scalping
Price

Sby scalpers

A

Dead Weight Loss
GFB

F
E

P*
Pface value

B

G
Shortage

D

C

 
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QS

Q*
 

QD

Q
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Scalping=Brokering
• Economists insist that there is no
difference between brokers who sell in
offices and scalpers who sell on streets.
• Both get tickets from those who want
them least (willing to accept the least
money) to those who want them most
(willing to pay the most money).
 

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© 2002 The McGraw­Hill Companies, Inc., All Rights Reserved.