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THE TICKET SCALPER

Webster’s dictionary defines “scalper” as one who “buys and sells in order to make quick profits,” and “scalping” as “cheating, defeating, and robbing.” The latter definition is the one used by the public in its hostility toward “ticket scalpers.”

The reason for this condemnation is easy to discern. Imagine a theatergoer or sports fan on the eve of the big event, arriving and finding, much to his consternation, that he must pay $50 for a $10 seat. He thinks that these outrageous prices are charged by “scalpers,” who purchase tickets at normal prices and then deliberately withhold them until people are so desperate that they were willing to pay any asking price. An economic analysis, however, will show that the condemnation of the ticket scalper is unjust.

Why does scalping exist? A sine qua non of scalping, a necessary condition for its existence, is a fixed, invariable supply of tickets. If the supply could increase with increased demand, the scalper would be totally displaced. Why would anyone patronize a scalper when he could purchase additional tickets from the theater at the printed list price?

A second necessary condition is the appearance on the ticket of a list price. If a stipulated price did not appear on the ticket, scalping, by definition, could not occur. Consider shares of stock bought and sold on the New York Stock Exchange on which there is no printed price. No matter how many are bought, how long they are held, or how high the price at which they are resold—they cannot be “scalped.”

Why do theaters and ballparks print ticket prices? Why not allow them to be sold at whatever price the market will bring, the way wheat is sold in the Chicago futures market or shares of stock in the stock market? If they were, scalping would be eliminated. Perhaps the public looks upon printed prices on tickets as a great convenience; perhaps it helps people to budget, plan vacations, etc. Whatever the reason, the public must prefer prices to be stipulated. If it did not, managers and producers would find it in their interest not to do so. Thus the second necessary condition for scalping exists by popular demand.

The third condition which must be present is that the ticket price chosen by management be lower than the “market clearing price” (the price at which the number of tickets people are willing to buy is just equal to the number of seats available).

Stipulated prices lower than the market clearing price are open invitations to ticket scalping. For at the lower price there are more customers willing to buy tickets than there are tickets available. This imbalance sets in motion forces which tend to correct it. Would-be purchasers begin to try harder to obtain tickets. Some of them become willing to pay more than the price printed on the ticket. Prices rise, and the original imbalance is corrected as these higher prices cause a drop in demand.

Why do theater or ballpark managers set their ticket prices below the market clearing price? For one thing, lower prices invite a large audience. Long lines of people waiting to enter a theater or ballpark constitutes free publicity. In other words, management forgoes higher prices in order to save money it might have had to spend on advertising. In addition, managers are loath to raise ticket prices—even though they would have little difficulty selling them for a big event or special movie—for fear of a backlash. Many people feel that there is a “fair” price for a movie ticket, and managers are responsive to this feeling. Thus, even though they might be able to charge higher than usual prices for a movie like “The Godfather,” they choose not to. They know many people will refuse to patronize the theater at a later time, feeling that the management “took advantage” of the public during the showing of this very popular movie. There are several other motivations, less compelling, for keeping prices fixed at below equilibrium levels. Taken together they ensure that this pricing policy—the third condition necessary for scalping—will continue.

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Well, even if he is a scalper I admire his spunk.

In taking a closer look at the positive function fulfilled by the ticket scalper, it has been shown that when tickets are priced below the equilibrium level, there are more customers than tickets. The problem becomes one of rationing the few tickets among the many claimants. It is in the solution to this problem that the ticket scalper plays his role.

Suppose that during the baseball season the price of an average ticket is $5.00 and the ballpark is filled to its capacity of 20,000 for every game. However, for the “big game” at the end of the season, 30,000 people want tickets. How will the 20,000 tickets be distributed or rationed among the 30,000 people willing to buy them? Which 10,000 of the 30,000 hopefuls will have to forgo the game?

The two basic ways of rationing goods that are in short supply have been defined by economists as “price rationing” and “nonprice rationing.” In price rationing, prices are allowed to rise. This, in our opinion is the only fair way to ration a commodity when demand exceeds supply. In the example above, the average price of a ticket may rise to $9.00 if that is the price at which there will be only 20,000 people ready and willing to buy the 20,000 tickets. The specific procedure through which this increase of $4.00 in the average price of a ticket takes place varies. Ticket speculators or “scalpers” might be permitted to buy all the tickets and resell them at $9.00 per ticket. Or, they might be permitted to buy 2,000 tickets, the other 18,000 being sold for the printed ticket price of $5.00. They might sell the 2,000 tickets for $45.00 each, and this would also result in an average price of $9.00 per ticket. Though the ticket scalpers would be blamed for the “outrageously high” prices, the price would really be the result of simple arithmetic. For if an average price of $9.00 is necessary to reduce the demand for tickets to the available 20,000, and if 18,000 of them are sold at $5.00 each, then the remaining 2,000 must be sold at $45.00.

In nonprice rationing, prices are not allowed to rise in order to decrease the demand to the level of the available supply. Instead, other techniques are employed to attain the same end. The management may distribute the tickets on a first-come, first-served basis. It may employ other types of favoritism in order to narrow down the market—nepotism (selling the tickets only to relatives or friends), racism (selling them to only certain racial groups), sexism (selling them only to males). Certain age groups may be singled out and all others barred, or perhaps war veterans or members of certain political parties may be given special privileges. All these nonprice rationing techniques are discriminatory and arbitrarily favor some groups over others.

Consider a typical first-come, first-served (FCFS) method, since this is the type of system most widely used and the one usually thought to be “fair.” Though tickets are not scheduled to be sold until 10:00 a.m. of the day of the event, hopeful customers line up outside the box office long before. Some join the line at the crack of dawn; some even begin the night before. FCFS is thus discriminatory against those who find waiting in line particularly onerous, those who cannot take a day off from work to wait in line, or those who cannot afford to hire servants or chauffeurs to wait in line for them.

Does price rationing, and therefore, ticket scalping, favor the rich? An equivocal answer must be given. From one perspective, ticket scalping helps the lower and middle class, and hurts the rich. Assuming that the lowest income class includes more people who are unemployed or marginally employed, they have time and opportunity to wait in line. Even if employed, they do not lose as much as others when they take time off from work. For these people who have few options, ticket scalping provides employment and business opportunities. There is no other pursuit in which a poor person can begin his own business with so little capital. In the case stated above, all that is needed is $50.00 to buy ten $5.00 tickets. When and if these are resold at $45.00 each, a profit of $400.00 is gained.

Members of the middle class are helped as well, for these people are less likely to have time available for waiting in ticket lines. It is more costly for them (in terms of income lost) to take time off from work than for a member of the lower class. It is prudent for the member of the middle class to buy his ticket from the scalper for $45.00 rather than wait in line and lose far more, which he might have earned had he gone to work. In short, ticket scalping allows people in the lowest income brackets to serve as the paid agents of people in the middle class, who are too busy to wait in line for cheap tickets.

Rich people have servants who can wait in long lines for them and, therefore, do not need scalpers. In one case, however, the ticket scalper can help even the rich—when the scalper, who is a specialist, can do the job for less than it would cost the rich man to use a servant for the task. (It should occasion no surprise that ticket speculation can benefit all people. The market is not a jungle where people can only benefit at the expense of others. Voluntary trade is the paradigm case of mutually beneficial action.) If the scalper’s profit margin is less than what it would cost the rich man to use a servant, he can buy the ticket directly from the scalper, cut out the middleman servant, and save the extra money.

From another perspective, however, price rationing and ticket scalping favor the rich, by ensuring that they will find it easier to purchase tickets at the high market price, while the rest of the public may find it difficult or impossible. However, this is the essence of a monetary economy and must be accepted as long as we wish to reap the benefits only such a system can provide.

In the chapter on the importer, a defense will be made of a monetary economy because it enables us to specialize and to benefit from the division of labor. Imagine the quality of life and the chances for survival if each of us was limited to what we could produce ourselves. The spectre is frightening. Our lives depend on trade with our fellows, and most if not all of the people presently living would perish if the monetary system fell.

The degree to which we do not permit money to ration goods, the degree to which we do not allow the rich to obtain a greater share of the goods of society in proportion to their monetary spending, is the degree to which we allow the monetary system to deteriorate. It is, of course, unfair to allow the rich to obtain a greater share of goods and services, to the degree that many of them amassed their fortunes not through the market but because of government aid. However, eliminating the monetary system in order to rid it of illicitly gathered fortunes would be like throwing out the baby with the bath water. The answer lies in directly confiscating the ill-gotten wealth.

When wealth is earned honestly, there is nothing inappropriate about being able to receive a greater share of goods and services, and it is essential to the preservation of the monetary system. The scalper, by facilitating the price rationing of tickets, is instrumental in assisting the rich in obtaining the rewards of their efforts.