The Economics of Ticket Scalping
Updated: Nov 21, 2019
The Economics of Ticket Scalping
By: Amos Koh
Have you ever been to a concert to watch one of your favorite bands perform? If so, how much did you pay for the ticket? When I was taking a study break and, subsequently, browsing through my social media, I came across several posts about a very popular Korean band, BTS, coming to Singapore. A couple of posts later, there were many rants from fans about how high the prices were for, apparently, sold out tickets on the secondary market. In this article, we will explore the profile and methods of a scalper, followed by the solutions that could potentially save you some money, the next time you want to buy tickets on the secondary market!
The Ticket Scalper
In short, a ticket scalper is an individual who buys tickets from the primary seller (organizer), and then sells them to anyone who is willing to pay a price named by the scalper to enter the concert. From a fan’s standpoint, scalpers are simply people willing to make a quick buck by taking advantage of the fact that fans may be willing to pay a high price to watch a concert. From an economic standpoint, when there is an excess demand for a good, prices should rise to the level where there would be an equilibrium price and quantity. Continuing from this view, scalpers could be, to a certain extent, beneficial to the economy as they ensure that the prices move even closer to the equilibrium price, where quantity demanded will be closer to the quantity supplied, given the resale prices of the tickets. That being said, the scalper need not be a fan of the musician/band. In technical terms, the scalper may not necessarily derive utility from attending the concert but will derive utility from the money received by selling the ticket.
Ticket scalpers typically, buy tickets the same way fans do: by either queueing up in person at the ticket booth or by getting a number for an online ballot. Following which, they will sell the tickets, usually, online through a marketplace (e.g. Carousell) or by posting prices on scalpers’ sites such as StubHub. Prices named by the scalper are, generally, significantly higher than the prices quoted by the organizer. This is done in order for the scalper to generate profits from his/her efforts to queue for the tickets. Only fans who have valuations higher than the price named by the scalper will move on with the purchase. No transaction takes place if the price of the ticket is above the fan’s reservation price.
So How Much?
As mentioned above, the upcoming BTS concert in January 2019 was sold out, online, within four hours of the tickets being release, and on that same day, scalpers’ tickets were posted on StubHub at prices of more than $12,000, from the original price of $352 for a CAT 1 Standing ticket (closest possible to the stage)1. If tickets are sold at this price, the scalper makes a profit of $11,648 from selling a single ticket, which is 33 times the original value of each ticket. Other recent concerts that have been scalped at high prices include those of artists such as Sam Smith and Bruno Mars. Reportedly, Sam Smith concert tickets were posted on StubHub at prices of up to $1,8002 and Bruno Mars tickets were seen to be sold at $1,5003 on Carousell, a far cry from the original price of $348.
The Artists’ Stance
Ed Sheeran, a very popular musician known for many top hits, has been well-known to speak out against ticket scalpers. When he came to perform in Singapore, it was alleged that concertgoers’ names would be printed on the ticket at the point of purchase. Hence, without any proof of identification, the tickets would be cancelled, and admission would not not be given to the individual. In this case, a buyer can put his name on multiple tickets, but must have a letter of authorization to buy these tickets on behalf of the individual/s. Ed Sheeran has been known to take an aggressive stance against ticket touts, and it was reported that his management cancelled more than 10,000 tickets during his concert in Manchester after they identified purchases made by known scalpers. Another artist, Harry Styles who came to Singapore recently, also carried out a similar measure.
In my view, artists should have the incentives to carry out such strict measures. Unless they collude with scalpers, they generally have nothing to gain from the profits that scalpers make. However, by not carrying out such measures, it is possible that they could lose fans, or worse still, have a concert hall that is less than packed if the scalpers are not able to sell the tickets on time.
Price Decay Factors
Rather than waiting for your favorite artist’s management to act against ticket scalpers, how could you save money when you want to attend a sold-out concert? I have observed that the highest prices on the secondary market are posted hours after the tickets have been sold out from the organizer. However, as time goes by, these prices tend to fall. There are many reasons that have caused this, but I have identified two main reasons with economic theory behind it:
Firstly, on StubHub, other sellers’ prices are tantamount to perfect information. Before a scalper posts a ticket up for sale, he/she is able to see what similar tickets are going for, even on other platforms. In an industry where we have many sellers selling a homogenous (identical) good, this is a good example of almost perfect competition, where sellers will sell at prices equal to marginal costs. At prices beyond the marginal cost, there are incentives to undercut other sellers, because they know that tickets (of the same category) are homogenous goods, and hence perfect substitutes for one another. This, however, does not imply that tickets will be sold at (nominal) face value (that is, the price quoted by the organizer), because the scalper still attaches a monetary value to his/her time and effort expended to obtain these tickets. As a result, the marginal cost would be the total sum of the (nominal) face value and the monetary value of the scalpers’ time, which we can take as opportunity cost. In this case, there would be zero economic profits to be made from a perfectly competitive industry, such as the secondary market for tickets.
The second solution for concertgoers, would be the time factor of pricing. In the above situation, the prices are always the highest right after the tickets have gone up for sale. Nevertheless, there are a small fraction of concertgoers willing to pay an exorbitant amount for certainty of entering the concert. As the concert draws closer, the price falls due to the excess supply of concert tickets at given prices. As I am typing this report, I observe that prices of the BTS tickets on StubHub have fallen to below $3,000 from the above stated price of more than $12,000 for a CAT 1 Standing ticket4, and a few days before the concert, the tickets will be very close to the (nominal) face value or possibly below that price. The reason this happens is simply because scalpers, even if they want to attend the concert, derive no utility from additional tickets because each ticket only admits one person. They know that once the concert starts, the ticket prices will fall massively below the nominal value. As a result, they will have to sell at a price that a concertgoer names, because they don’t have any more bargaining power. Hence, we can observe here that the premium paid by the concertgoer in the secondary markets is a “certainty premium”. Concertgoers who want the certainty of entering will pay a lot for certainty, while concertgoers who are patient can wait for prices to fall, before making a purchase.
In conclusion, how can we go to watch our favorite artists live, without breaking the bank? The key here, just like the answers to many questions in our lives, is to be patient.
Asia: Scalpers reselling tickets to BTS’ sold out Singapore show for exorbitant prices. (Online) https://www.bandwagon.asia/articles/scalpers-reselling-tickets-to-bts-sold-out-singapore-show-for-exorbitant-prices Accessed on: 9th November 2018
Asia: Sam Smith’s Singapore show is not sold out https://www.bandwagon.asia/articles/tickets-to-sam-smith-s-singapore-show-are-now-sold-out Accessed on: 9th November 2018
Straits Times: Bruno Mars Tickets already offered for a resale at inflated Prices https://www.straitstimes.com/lifestyle/entertainment/bruno-mars-tickets-already-offered-for-resale-at-inflated-prices-despiteAccessed on: 9th November 2018
Stubhub: Singapore BTS Ticket Priceshttps://www.stubhub.sg/bts-singapore-tickets/ev804380Accessed on: 9th November 2018