In defence of the scalper

Events in high demand that have limited capacity sell out. See for example the Wellington Sevens or Toast Martinborough, which sold out in three minutes and thirteen minutes respectively. These events sell out as demand far outstrips supply at the price that the seller sets. In other words, many of those purchasing the tickets would be willing to pay much more than they actually do pay in order to attend said event.

High demand events such as these are the capitalist world’s version of queuing for basic food items in a communist shit-hole. When buyers are unable to adequately express their willingness to pay, due to blunt ‘one-for-all’ pricing and an inability of the seller to price discriminate, shortage ensues.

Enter the scalper. Scalpers are typically demonised by the media in New Zealand. However, scalpers simply allow buyers to reveal their true willingness to pay. When a scalper auctions off a ticket on Trademe, buyers are able to pay exactly what they value their attendance at said event at. What ensues is the efficient allocation of resources – scarce resources are allocated to those that value them highest – an admirable economic goal. Contrast this with the lottery that is the current ‘log-in and hope’ method of ticket allocation. Rather than be vilified, scalpers should be commended for their actions that facilitate the clearing of the market!

Indeed, a commentator at the NBR goes further, calling scalpers “unsung entrepreneurs”. I tend to agree with this sentiment.

Disclaimer: I have both scalped and been scalped. Both experiences were highly pleasurable and I encourage you all to try them.

  • What about “royalties” for the promoter, artist, team etc? Are they entitled to receive a cut of that higher willingness-to-pay? Should we set up a centralised scalper exchange which allows such a cut to be taken?

  • Absolutely. I am surprised that ticket sales (or at least a portion of them) to popular events aren’t auctioned off – it’s not as if the technology isn’t there.

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  • Dismalsoyanz

    Hmmm. I guess the question is whether the original artist/service provider contemplated a fixed price and no secondary market when they contracted to provide their work/service.

    If I assign the rights to manage who gets to see my work/taste my food etc to a third party, do I have any right as to how it is priced? Unless it is explicitly laid out, have I given the promoter carte blanche wrt pricing?

    Aside from the qustion of fakes, the only reason I can come up with why promoters don’t like scalping is because it shows that they got the pricing wrong.

    The artist/service providers should be relatively indifferent or perhaps even slightly pleased if it means that those attending are willing to pay higher prices not just to attend but to also purchase merchandise. [Possibly the argument about getting it wrong also applies to the artist-promoter relationship as well?]

    Not sure Custer found it so pleasurable.

  • I’m guessing promoters and artists don’t like it becasue then people have less money to buy merchandise at the event.

    Thus scalping is a transfer away from the prmoter/band to the scalper.

  • steve

    If the promoter were to price the event properly, they would set a price such that the event sells out on the day of the event, (as opposed to immediately). If they can price discriminate different seats then they will simply do this for each section of pricing. If they set a price so low the event sells out straight away, they are simply throwing potential profits away. Since promoters and artists are likely profit maximisers, there must be other reasons for setting the price lower that will lead to long-run profit maximisation. i.e. charging high prices may lead to a backlash at future events, purchase of merchandise etc and they want to avoid this “cost”.

  • steve

    in addition, scalpers simply face different “costs” in terms of backlash etc, and can therefore sell tickets at the scalped premium

  • Dismalsoyanz


    Good point.

    Anyone done a study on the elasticity of hot pie demand relative to ticket price?

    Do performers get a cut of sales from unrelated merchants (e.g. f&b)?

    From a PR perspective, its not a bad thing to underprice and have excess demand. That way you can perpetuate the excess demand if buyers’ behaviour is conditional on the outcome of the previous event. However, perhaps the problem is that they do not know what the price that would just clear the market is and prefer to err on the side of lower price (and excess demand).

  • I totally agree that scalpers aren’t the problem! I think we have a simular problem with governments.

  • Kimble

    Ticket sellers take on a lot of financial risk with less-popular events. Perhaps this uncertainty makes them very conservative when it comes to events they KNOW will be very popular?

    Another thing to consider is that if the ticket seller (who is linked to the band) charges huge prices, then it looks like the band is ripping off their fans (even though their customers are more than willing to pay that high price).

    This is a very emotive issue and I have had several really fun arguments with concert-going colleagues about the social good of scalpers. Usually they refuse to listen, they consider the original price of the tickets to be the market price.

  • Dismalsoyanz

    An interesting article in the recent NBER working papers series:

    Phillip Leslie
    Alan Sorensen
    Working Paper 15476

    We develop an equilibrium model of ticket resale in which buyers’ decisions in the primary market, including costly efforts to “arrive early” to buy underpriced tickets, are based on rational expectations
    of resale market outcomes. We estimate the parameters of the model using a novel dataset that combines transaction data from both the primary and secondary markets for a sample of major rock concerts.
    Our estimates indicate that while resale improves allocative efficiency, half of the welfare gain from reallocation is offset by increases in costly effort in the arrival game and transaction costs in the resale

    I’ve not read the whole thing but the potential welfare loss appears to be related to cost associated with “brokers” exerting effort (and thus forcing others to exert greater effort) to obtain tickets in the primary market. In a situation where the effort required is relatively low (e.g. internet ticket sales) my gut reaction is that the social welfare loss is pretty small compared to the allocative gains.

    Another interesting aspect to their model is that 31% of resellers do so below face value (i.e. at a loss) because of things like schedule conflicts. An alternative explanation is that they realised that the demand for Britney tickets just really isn’t that high…