Carpe Diem

Only tickets are so underpriced that an entire secondary industry exists to take advantage of the discrepancy

From Adam Davidson’s recent article in the NY Times about ticket scalping:

Few products are so under-priced that an entire subsidiary industry exists to take advantage of the discrepancy. When there is excess demand for a new car or phone, some people might sell theirs at a markup on eBay, but there’s nobody across the street from the dealership or Best Buy offering it right away for double the sticker price; there certainly isn’t an entire corporation built on exploiting companies’ failure to properly price items initially. Yet concerts and sporting events consistently price their tickets low enough that street scalpers risk jail time to hawk marked-up tickets, and StubHub makes hundreds of millions a year in revenue.

Most concertgoers don’t usually consider ticket prices as incredibly low. After barely keeping up with inflation for decades, concert prices have risen wildly since 1996, or around the time when baby boomers, who helped start the industry, aged into a lot more disposable income. These days, prices can seem incredibly high. Barbra Streisand, who charged more than $1,000 for some. Yet to an economist, the very existence of scalpers and companies like StubHub proves that tickets are far too cheap to balance supply and demand.

MP: As I’ve pointed out many times before, a thriving secondary market for tickets to concerts and sporting events can only exist when: a) tickets are under-priced relative to their true market value, and/or b) tickets are under-supplied (at least for concerts) relative to fan demand. And since artists, promoters, managers and sports venues control ticket price and ticket quantity (at least for concerts), they could easily minimize or eliminate the secondary market pretty easily by raising ticket prices and/or increasing the quantity of concert tickets available for sales (bigger venues, more shows, etc.).

18 thoughts on “Only tickets are so underpriced that an entire secondary industry exists to take advantage of the discrepancy

  1. “but there’s nobody across the street from the dealership or Best Buy offering it right away for double the sticker price”

    well, unless it’s an iphone or an ipad.

      • walt-

        that’s a bit of a mischaracterization.

        if ford gets a loan from the government and pays it back in full, with interest, as they show every sign of doing, then we got paid to retool ford.

        we didn’t pay anyhting. the treasury made money.

        it was not a gift or a monstrous money losing equity stake.

        at worst, we could argue that either the interest was too low (possible) or that government has no business making such loans (an argument i would agree with), but notions that somehow we “paid” to retool ford are false.

        lending is not the same as paying, except, in a situation like gm or c, where there was clearly no hope of ever being paid back in full.

        • If there were zero risk in lending to Ford, why didn’t Ford simply go to a commercial lending institution for funds?

          “but notions that somehow we “paid” to retool ford are false.”

          If you make a risky loan, and you happen to get the money back with interest, it doesn’t mean you didn’t pay, in a latent sense. It means you happened to get lucky that time.

          Your “system” for making money for the government by having it make risky loans no one else would make sounds suspiciously like the lottery-winning “systems” people write books about:
          http://www.smartluck.com/free-lottery-strategies.htm
          http://www.amazon.com/Learn-Increase-Chances-Winning-Lottery/dp/1452077460

          “In his book, Richard discusses the ins and outs and dos and don’ts of buying lottery tickets to increase your chances of winning. He has created a method that he and members of his family use that has enabled them to WIN several lottery game GRAND prizes.”

          • hitssquad, the risk, if you are working with your own money, is priced into the interest rate. If it isn’t, the difference is a gift to the recipient and a deserved loss to the donor.

            Ford received taxpayer money because the lending market was tight at any interest rate. I think it was a good investment–considering.

            Lottery tickets? Yeah, I worked with a guy who fell for everything that came along to get rich quick. He said, right before I retired and he could not even though we both worked at the same place 39 years, he would be rich if he had all the money back he spent over the years trying to be rich.

          • “If you make a risky loan, and you happen to get the money back with interest, it doesn’t mean you didn’t pay, in a latent sense. It means you happened to get lucky that time.”

            this is just absurd in every respect.

            1., as i already said, i do not think the treasury should make loans to companies.

            2. interest is charged to account for risk, and, in this case, i would bet you there was also collateral. if i lend you $500k on a house worth $1 million, it’s not a lottery ticket. if you have a >1% chance of defaulting and i charge 6% interest, that that is hardly “paying” either. i’d happily make 100 of those loans.

            you seem to be pretty badly financially illiterate hit.

          • Walt

            The loans, whatever, you want to say about them, were paid back in full early with interest. Do you write peoples’ names on the dollars people give you to invest to make sure you are not giving the same dollars back to them?

            You are really just playing word games here and avoiding the issues – the most important one being that it’s not the role of government to loan money taken by force from taxpayers to private businesses for any reason. It is unconstitutional. It is illegal.

            I wish I could say I was paid back early and in full for the money I have loaned out, and I would not care if they were from new loans or the money I loaned them.

            More word games. If someone owed you $1000 and you loaned them another thousand with which they paid back the original $1000 would you say they had paid off their loan?

          • Ron H.,

            Yes, GM got more than they will pay back. The Treasury stated they knew they were going to lose money but their goal was to save jobs. I think their entry and exit prices and timing could have been handled better if they sincerely wanted make a profit. According to many sources, they saved jobs. If you are not attempting to make a profit and you don’t make a profit, was you strategy successful or a failure?

            I look at it the same way I loaned my brother-in-law money ten years ago. I never got any money back, but he got on his feet and got off my ass of needing more money by supporting himself otherwise.

          • Walt

            It is not the role of , nor is it legal for the treasury to save jobs. Full stop.

            You can alibi all you want, but that’s the entire story.

        • morganovich, GM and Chrysler paid off their Treasury loans early, in full, and with interest. Some people would bring up the loss on the stock that will most likely occur, but I know you know the vast difference between debt and equity financing. For those who don’t, the amount of the loss or gain on the stock will be realized by the stockholder who took that risk by when they decide to sell and the market price on that day.

          Personally, I don’t base my sells on purchase price. I use today’s price and what I think the future price will be. Any decision point about the purchase price is over when you pull that trigger so it ceases to be data for action, but the Treasury will base their sell decision on emotions/public relations/politics. I’m holding on to my GM stock because I think it will go up.

          • GM and Chrysler paid off their Treasury loans early, in full, and with interest

            Of course, they paid off their loans with the money the government simply gave them outright in the form of TARP, as well as special government preferences, particularly with allowing GM and Chrysler to play fast and loose with the tax code. In short, they “paid” off the loan using accounting tricks that Ken Lay would have been proud of.

          • Ken,

            Paying loans off with the proceeds from loans is a common and accepted business practice. Have you ever heard of someone refinancing their house? Dollars don’t have their source written on them.

          • walt-

            that payoff was circular. they paid the treasury with treasury money. they paid tarp with tarp money. this was hardly “standard industry practice” and even if we accept it as such, if you refinance your mortgage, i doubt you would call that “repaying” your mortgage in any net sense. you are just playing semantic games here.

            and, as most of the financing WAS equity and was clearly never going to be repaid at value, i think it’s pretty disingenuous to claim that they were not “given” a pile of money.

            how else could one describe paying multiples of market price for distressed equity?

            your point about basing sells on purchase price is irrelevant. sure, you have to play at the margin. but the real issue was just how much they deliberately overpaid for their purchase price. when you pay $70 for somehting the market prices at $28, well, it’s gonna be pretty tough to get that back.

            the losses on gm and c will be large and deliberate.

            there was no plausible way they could ever have been repaid.

          • morganovich, the Treasury bought GM stock. Profitably buying stock is generally a long-term investment strategy of 20 or 30 years. Buying and then selling stock short-term is a designed money loser except for those who are earning a commission in the process. So, sure the Treasury will lose money by design. I plan to make money on my GM stock purchase using a buy-and-hold strategy.

            The loans, whatever, you want to say about them, were paid back in full early with interest. Do you write peoples’ names on the dollars people give you to invest to make sure you are not giving the same dollars back to them? I wish I could say I was paid back early and in full for the money I have loaned out, and I would not care if they were from new loans or the money I loaned them.

  2. As I’ve written here before, there IS a solution, if the ticket sellers and entertainers ever decide that they want one.

    Sell tickets using a variation of a Dutch Auction. A traditional Dutch Auction (which starts with a high acceptable bid and drops until the sale) generally sets the price for ALL items at the highest bid price.

    What I propose instead is a multi-price, multi-sale, online version of a “Dutch Auction.” Start at a very high price. Then drop the ticket price in announced increments at scheduled times, and people can make the purchase when the price reaches their acceptable level — IF any tickets are left.

    EXAMPLE: 10,000 concert tickets. The sale would be online — Live Nation, eBay, the entertainer’s own website, or whatever. Start with a (say) $3,000 ticket price. Then drop the price (say) $25 every 15 minutest until there are no tickets left. The number of tickets sold and the number remaining would be posted in real time. People could put in “limit” buy orders — again online. eBay is a fine model for this.

    The result would be an exciting, highly publicized process where bidders would try to figure out how little they could pay, yet want to be sure they got tickets.

    As I see it, this would maximize profits, and largely eliminate the widely-disliked scalping system (except for a few late buyers — a very small, specialized, and necessary market). It also eliminates the need to pre-price all the tickets — a system that almost guarantees that the tickets will be either over or under-priced.

    If the concert producers and artists want to appear “fair,” they can give away all or a percentage of the “extra” proceeds (say, above $400 a ticket) to charity. Of course, the performer and concert producers define what’s “extra.” And they generate positive publicity while increasing their profits at the scalpers’ expense.

    Offhand I can’t find a specific label for my variation. Henceforth let it be known as a “Rider Auction.” Unlike the sensitive Dutch, I won’t be offended.

  3. “and largely eliminate the widely-disliked scalping system (except for a few late buyers — a very small, specialized, and necessary market)”

    Why not save some of the tickets for late auctions that start at higher prices?

    • A plausible refinement — certainly makes sense to me!

      The important point is that the SELLERS have such voluntary, PROFITABLE solutions at their disposal, but choose not to use them. Perhaps the Establishment ticket sellers fear being bypassed by the internet. I suspect that such is the case.

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