Lecture Issues in economics today - Chapter 35

This chapter presents the following content: The supply of labor, the demand for labor, high wage rates and economic rent, real wages and productivity, the minimum wage dispute.

Chapter 35

Ticket Brokers and Ticket Scalping

Chapter Outline

• BROKERING AND SCALPING

• AN ECONOMIC MODEL OF TICKET

SALES

• WHY PROMOTERS CHARGE LESS

THAN THEY COULD

• AN ECONOMIC MODEL OF

SCALPING

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.

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)

Looking a Marginal Cost

A Typical Good

MC

MC

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.

The Promoter as Monopolist

Q

P

D MR

MC

P monop

Q monop Capacity

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

Searching for the Perfect Arena

Q

P

D MR

MC

P monop

Q monop =   Capacity

Capacity Pricing

P

D MR

MC

P monop

P capacity

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

A Model of Scalping

D

P*

P face value

Shortage

A

B

C

F

G E

Dead Weight Loss GFB

• 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).