Such a Fuss About Ticket Resales

Two news articles this summer gave me the incentive to reintroduce my blog … albeit under a different name.  One of the articles, from Global News, had to do with the extremely long waits to get into the U2 concert in Vancouver. It seems that BC Place and Ticketmaster had introduced a policy whereby the ticketholders had to produce the credit card that was used to purchase the ticket. The second, from buzzfeed.com, is about Taylor Swift’s efforts to battle ticket resellers.

Both of these problems exist because fans of the artists are upset about not being able to get tickets at the posted prices. They may, if they can afford to do so, purchase a ticket in the resale market using StubHub or one of their competitors. It is this secondary market that appears to upset the artists involved.   It is to those artists, that this blog post is directed.

Clearly, those artists that condemn scalpers do not understand one of the basic lessons of microeconomic theory: market prices will adjust until the number of tickets available is equal to the number of tickets desired.  Should they wish to put blame on someone for the existence of the secondary market, they need only look to themselves.

When an artist decides to put on a show, they choose a venue.  The Fire Marshall in the relevant jurisdiction determines how many people are permitted to be in the venue. The maximum capacity puts an upper limit on the supply of tickets. The artist, or their agent or promoter, sets the ticket price. The number of people willing to pay the set price is what economist refer to as the ‘quantity demanded’.   As the price increases, the quantity demanded decreases – more people will want to buy tickets if the price is low; fewer if the price is high. Quantity demanded is inversely related to price.

There is one price and only one price where the number of people willing to purchase tickets is exactly equal to the number of tickets available.  Economists call this the equilibrium price.  It is an equilibrium because, at that one specific price, there is neither a shortage or surplus of tickets.

If the ticket price is set above the equilibrium price there will be empty seats at the show, which is never a good thing for the artist’s franchise.  If the ticket price is set below the equilibrium price, there will be some willing buyers who are unable to purchase tickets at the box office to attend the show, as they will be sold out.  One of these potential buyers (call him ‘Carlos’) may be willing to pay more than the listed price, and one of those individuals that purchased a ticket (call her ‘Amrit’) may be willing to sell her ticket at a slight premium.  In this case Carlos and Amrit could make a deal in the secondary market that benefits them both, and harms no one. The secondary market corrects the error in the primary market by letting the price rise until the number of buyers and tickets is the same.

Artists such as U2 and Taylor Swift could prevent the secondary market from being created but only if they apply the laws of economics. They can either set the ticket price at a ‘fair’ price, and then perform as many consecutive concerts as it takes to satisfy demand, or they could set the price at the equilibrium, whatever it may be, and perform one sold out show.

Disclosure Statement: the author has been both a buyer and seller on StubHub, but has no financial interest in the company.