With the NBA finals taking place, sports journalists are again discussing their favorite person to hate on: the ticket scalper. They are the recipients of some of the cruelest insults journalists can conjure up. They are routinely “portrayed as a seedy bunch of grifters only a few steps up the food chain from child pornographers, fantasy football participants and Pete Rose's circle of friends." Unfortunately, this distaste for the ticket scalper does not stop in the minds of the individual event-goers and journalists, extending to the realm of government. While the federal government has no laws on the books concerning ticket scalping, many states and local municipalities strongly regulate or outright prohibit the practice. Before completely writing off the ticket scalper as scum who cheat event-goers out of their money to make a quick profit, one should look closely at the service they provide and the role they play in the market. Upon doing so, one will find that these ticket scalpers are, in fact, hidden heroes of events, providing a variety of benefits to a variety of groups of people. In fact, the characteristics of the scalper that are decried by journalists and those ignorant of economics are actually the product of the heavy regulation and prohibition of the ticket resale market. Rather than direct our jabs at the ticket scalper, we should praise him for his entrepreneurial services, and look to the truly despicable one - the government - which prohibits their valuable service in the market.
Ticket scalpers act as speculators in the ticket market, and provide the market with an array of valuable services. Economist Walter Block explains that there are three necessary conditions in order for the ticket resale market to come into existence in an area. First, there must be fixed supply of tickets that can be bought and sold. This is why we do not find scalpers at movie theaters. In the case of popular movies, showing the movie in more theaters or on multiple screens in an individual theater can increase the number of tickets supplied. A second necessary condition is the existence of a listed price on the ticket. Shares of stock in a company cannot be scalped, because the price is constantly fluctuating due to market forces. The third condition is that the quantity of tickets demanded must exceed the quantity of tickets supplied, resulting in a shortage of tickets. If the opposite were true about the event, resulting in a surplus of tickets, then an event-goer would simply purchase tickets from the box office at face value. One can find such conditions at popular concerts, one-day showings of plays or a professional sports stadium. Out of all the industries listed above, the realm of professional sports is the most popular example, and has become the scalper’s best friend.
Much like speculators in other industries, the ticket scalper’s main role in the market is to readjust prices of tickets to their market clearing level, or equilibrium point. By borrowing Walter Block’s scenario, this role can be illustrated. The scenario goes as follows: “Suppose that during the basketball 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 playoffs at the end of the season, 30,000 people want tickets. In the scenario at hand, there is an increase in demand for tickets because of the finals, thus creating a shortage. When faced with a shortage, the problem becomes how to ration the limited supply of tickets among a large number of people. To alleviate a shortage of tickets, the price must be allowed to rise due to the decrease in quantity demanded. It is here where the scalper comes to the rescue.
The procedure of raising the equilibrium price can vary, but we shall look at two scenarios. The first one is the simpler of the two. Ticket Scalpers simply purchase all of the tickets that are up for sale and resell them at a higher price which will clear the market and alleviate the shortage, let us say $9. Another, more realistic alternative, is where the ticket scalpers are able to purchase and sell 2,000 tickets, while the other 18,000 are sold by the stadium at the list price of $5. They may sell them at $45 per ticket, which would also set the average equilibrium price at $9 (Block 86). In both scenarios, the ticket scalpers alleviate the shortage of tickets - something that is to be praised, not criticized. By raising the price, the marginal consumers are priced-out of the market, leaving the supply of tickets for the other consumers that are willing to pay a higher price for the tickers. Without the ticket scalpers, those willing to pay a higher price to see the game may never actually get to do so.
Fortunately some cities and states are embracing scalpers as friends of the sport rather than foe. If you're a Warriors or a Cavs fan who wants to catch this great series but have been discouraged by sold out stadium tickets, a local scalper may be able to help you out if you're willing to pay. As we get deeper into the series, the ticket prices will only go up. Because who doesn't want to see a good game seven live?
