Wednesday, March 14, 2012

Economist's Notebook: Scalpers

I suppose it is going to be a surprise to no one that I, an economist, do not have a problem with scalpers.  I appear to be a distinct minority, for example, the some in the Timbers Army are dead set against them:

Don’t buy from them.
Don’t sell to them.
Don’t acknowledge them.

The argument against scalpers generally follows along the lines of them simply enriching themselves while providing no value. Vultures, parasites and the like are generally the terms used to describe scalpers.

But they are providing value.  To an economist they are providing a service: creating a market where there was none prior. That the service they supply is valuable is evidenced by the fact that they do make a living doing it. People use scalpers to be the intermediaries for ticket transactions that are hard. Now sites like Stub Hub provide markets for these transactions, but they still generally work only when you know in advance that you'll be missing a game.

The right thought experiment is to imagine the case where there was no resale market at all.  Without scalpers for example if someone got sick the night of a game and could not attend, they would lose the opportunity to recover some of the value of the ticket and someone who wanted to attend the game but could not get tickets would be denied the opportunity of attending.  This is clearly a worse outcome than a scalper.  Sure the scalper may make some money in the transaction, but this is the reward for the time and effort they spend buying and selling tickets.

So simply denigrating scalpers serves no purpose.  Creating more effective resale markets is. One useful response in the case of the Timbers has been to tap into social media, in this case Facebook, to provide a market expressly for those that have a preference for selling their tickets at face value to those that are passionate about the Timbers. Once again this is a response to a missing market and I think it is wonderful. Those whose preferences match will use this venue.

I think the thing that really upsets people is the fact that the resale market with scalpers works to the advantage of the wealthiest consumers and serves to keep out less well-resourced fans that may be more passionate.  Economics says that this is efficient - those with the highest valuation should attend - but the unequal outcome is somehow disturbing.  I would argue that this is not really different than the regular ticket market but that is another issue.  That market efficiency and equality are not linked is one of the ongoing themes of economics, especially when it comes to policy.

But it is not alway so.  On opening night the seat next to mine was occupied by a dude who had spent his very last $10 on the ticket - well below face value.   Obviously a scalper had a single ticket that was hard to unload and in the end the market price ended up being quite low.  So the seat was filled, my broke neighbor had a great time and the owner of the ticket was able to recoup some of the cost.  Everybody wins...except, I suspect, the scalper who probably took a loss on this ticket.


Marvinlee said...

I concur with your take on scalpers. It seems a very normal working out of practical economics.

Robb said...

Interesting post! I'd like to hear what you think about "domain name squatters": a phenomenon that seems similar. These people register any plausible sounding domain name (e.g., all dictionary words) and relinquish them for a fee.

They claim they are providing a service, similar to someone who invests in real estate. Others like me believe they are practicing extortion which is enabled by quirks of the domain name regulatory scheme. (A confounding factor not present in the scalper scenario.)

Your take?