McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 35 Ticket Brokers and Ticket Scalping

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 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

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 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.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 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).

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Looking a Marginal Cost MC QQ A Typical Good An Event MC

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 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.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. The Promoter as Monopolist Q P D MR MC P monop Q monop Capacity

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 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.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Searching for the Perfect Arena Q P D MR MC P monop Q monop = Capacity

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Capacity Pricing Q P D MR MC P monop Q monop Capacity P capacity

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 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.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. A Model of Scalping Price Q S by scalpers D P* Q* P face value QSQS QDQD Shortage A B C F G E Dead Weight Loss GFB

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 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).