Economics of Scalping

By Jim Baltz, Wooi Yang Chang, and Brian Gavron

What’s interesting and relevant to our coursework in this week’s current events? How about the Super Bowl?

This brief article from the New York Times describes how the internet has changed the market for scalpers, people who sell tickets to events like the Super Bowl on the secondary market. There are thousands of these tickets on the market, each priced at an average of about $5,000 per ticket, a huge mark up from their $600-700 initial price since demand far exceeds the very limited supply.

In the past, one needed a scalper contact or waited until game day to purchase tickets from a random guy near the venue, often wondering if the tickets could be fake. Today, there exists a large variety of search sites online (try googling “Super Bowl tickets”), through which one can buy their tickets from hundreds of different sellers before game day. Many sites also guarantee the authenticity of their tickets, which is very important for this market that tends to have many forgeries. Market concentration is low, with most sellers offering 2-3 tickets, so competition is high. Increased transparency and competition through these sites have revolutionized the market.

This market is interesting because every ticket is unique, so there are technically very close substitutes within the market but not perfect substitutes. For example two seats next to each other are almost perfect substitutes. There are fewer substitutes as one moves further away from any given seat. Yet, the rate of change in substitutability is relatively slow for most of the stadium as one is only willing to pay so much extra to get a slightly better view of the field. That means cross price elasticity, if you consider every ticket as unique, is extremely high for similar goods, resulting in low price dispersion between sellers of similar goods (similar sections of the stadium). This is an example of how an educated consumer benefits. Sellers must charge very close to the market price or they will likely sell nothing. Note that prices may not be accurately represented initially on websites due to fees charged later (obfuscation).

Overall, researching and buying tickets through these sites is quick and easy, and will remain so in the future. Since search engines generally make a commission per sale, it is in their best interest to keep competition and transparency high. Thus, prices remain low so consumers use their site, and websites suffer less from decreased profits than the sellers.

I’m not sure if I’ll be one of those consumers in the near future, but if I wanted to, I’d rather buy re-sold tickets online than from a sketchy guy on the side of the road.

Go Bears!