Ticket Scalping

Suppose our social planner tried to choose an efficient allocation of resources on his own, instead of relying on market forces. To do so, he would need to know the willingness to pay of every potential buyer in the market and the cost of every potential seller. And he would need this information not only for this market but for every one of the many thousands of markets in the economy. The task is practically impossible, which explains why centrally planned economies never work very well.

To allocate resources efficiently an economy must get goods to the consumers who value them most highly. Sometimes this job falls to ticket scalpers

Tickets? Supply Meets Demand on Sidewalk

Ticket scalping has been very good to Kevin Thomas, and he makes no apologies. He sees himself as a classic American entrepreneur a high school dropout from the Bronx who taught himself a trade, works seven nights a week, earns $40,000 a year, and at age twenty six has $75,000 in savings all by providing a public service outside New York’s theaters and sports arenas.

He has just complaint “I’ve been busted about 30 times in the last year”, he said one recent evening just after making $280 at a Knicks game. You learn to deal with it – “I give the cops a fake name, and I pay the fines when I have to but I don’t think it’s fair. I look at scalping like working as a stockbroker buying low and selling high. If people are willing to pay me the money, what kind of problem is that?”

It is significant problem to public officials in New York and New Jersey who are cracking down on street scalpers like Mr Thomas and on licensed ticket brokers. Undercover officers are enforcing new restrictions on reselling tickets at marked up prices and the attorneys general of the two states are pressing well publicized cases against more than a dozen ticket brokers.

But economies tend to see scalping from Mr Thomas’s perspective to them, the governments crusade makes about as much sense as the old campaigns by Communist authorities against profiteering. Economists argue that the restrictions inconvenience the public, reduce the audience for cultural and sports events, waste the police’s time, deprive New York City of tens of millions of dollars of tax revenue an actually drive up of the cost of many tickets.

It is always good politics to pose as defender of the poor by declaring high prices illegal says William. J. Baumol the director of the CV Star Center for Applied economics at New York University. But when you outlaw high prices you create real problems.

Economists see an illustration of that lesson at the Museum of Modern Art, where people wait in line for up to two hours to buy tickets for the Matisse exhibit. But there is an alternative on the sidewalk: Scalpers who evade the police have been selling the $12.50 tickets to the slow at prices ranging from $20 to $50.

You don’t have to put a very high value on your time to pay $10 or $15 to avoid standing in line for two hours for a matisse ticket said Richard H Thaler an economists at Cornell University. Some people think it’s fairer to make everyone stand in line, but that forces everyone to engage in a totally unproductive activity, it discriminates in favor of people who have the most free time. Scalping gives other people a chance too there is no justification for outlawing it.

Legalizing scalping however, would not necessarily be good news for everyone. Mr Thomas for instance fears that the extra competition might put him out of business. But after 16 years he started at age ten outside of Yankee Stadium he is thinking it might be time for a change anyway.