Written by: Dhruvi Dedhia
Whether it’s trying to sell Michigan Football tickets on GroupMe, or having to scour the web for cheap resales because concert tickets sold out within minutes, everyone’s encountered ticket resales in some capacity. Ticket reselling, also called ticket scalping, is “the act of purchasing tickets for an event, such as concerts, sports games, or theatre performances, with the primary intention of reselling them at a higher price. This practice occurs in both the primary and secondary markets, where the primary market represents the official sale of tickets by event organizers, and the secondary market involves reselling by individuals or third-party ticket brokers” (Arnfield, 2023).
The global resale ticket market size was estimated at about USD 3.4 billion in 2024 (Web Series Reviews, 2024). Controversial and often highly regulated, while ticket scalping is not banned under federal law, it is prohibited in some form in 15 states (TicketLeap, 2023). From an economic standpoint, the fact that a secondary resale market exists implies that the tickets for an event are either undersupplied, underpriced, or a mix of both (McKenzie & Crosby, 2017). Essentially, were the tickets priced at market-clearing value, or supply was high enough to meet demand, then there would simply be no demand in a secondary market—and this secondary market would not exist. Standard economic theory states that excess demand, i.e. a shortage, puts upward pressure on the price, and therefore tickets in resale markets often sell for much higher than the official price for popular events.
Why are Tickets Priced Low in the Primary Market?
The question that naturally arises now is that if tickets can be sold for a higher price in the primary market itself, why do event organizers underprice them? First, we must understand the primary market—mainly, that the supply for most common ticketed events, such as sports games, concerts, etc. have perfectly inelastic or fixed supply. This is because venues (such as stadiums, for example) have a fixed number of seats that cannot easily be changed in the short run. In this case, excess demand can only be eliminated by raising prices so that the equilibrium price and quantity are reached. However, it is difficult to determine this equilibrium price—consumers themselves are often unsure of how much they value attending a particular event, as this is usually hard to quantify (Courty, 2003). Further, it is important to the performer’s “image” that the venue is sold out—it differentiates attending to those with tickets that those without tickets are unable to attend, and a full house optimizes concessionary revenues (Krugman, 1999).
Given all the difficulties with actually determining the market equilibrium price, producers set the tickets at an “artificially” low price, exchanging potentially higher profits for the certainty that the venue will be full. Krugman also proposed another theory for why tickets may be underpriced, centered on “appealing to the common man”. Lower prices mean that the average person can attend sports and music events, in contrast to having a venue filled with rich and possibly “less enthusiastic individuals” (Atkinson, 2019). This enables “a situation where not only the rich and powerful receive all the tickets, [thus generating] positive morale effects” (Happel & Jennings, 1995).
A third theory has to do with the differing profit-maximizing objectives of primary and secondary sellers. Event organizers are more concerned with the long-run, whereas resellers seek to maximize profits over a much shorter time period—usually on a case-by-case basis (Swofford, 1999). The two kinds of sellers may also face different costs (information costs, transaction costs, taxes, etc.). Swofford also highlights that the primary sellers are more likely to be associated with the product/performance than secondary sellers: for event organizers, present decisions are likely to affect future outcomes, whereas resellers can focus solely on the event in question without much worry for future possibilities. Thus, the pricing strategies between the two differ vastly, and primary sellers must avert risk by pricing relatively low.
Welfare Effects
The welfare analysis of the primary ticket market is straightforward: welfare is maximized when market equilibrium is attained, i.e. supply is equal to demand. However, with organizers pricing tickets artificially low, there is excess demand in the primary market and thus a welfare loss. Now, despite the backlash and controversy ticket scalping is often received with, intuitively, from an economic perspective, it could actually work to improve welfare or allocative efficiency (which “is a characteristic of an efficient market where the optimal distribution of goods in an economy meets the needs and wants of society” (Kenton, 2023)).
Consider the primary market, which reflects excess demand, supply shortage, and generally lower prices. The secondary market, in a way, works to close this gap between supply and demand by allowing “tickets to be traded from low-value to high-value consumers” (Leslie & Sorensen, 2013), essentially supplying to the excess demand and typically reducing the disparity between demand and supply with higher prices (that may be closer to equilibrium).
A study found that resale improved allocative efficiency by 5% on average, but that one-third of this was in fact “offset by increases in costly rent-seeking in the primary market and transaction costs in the resale market” (Leslie & Sorensen, 2013). Therefore, it appears that even though scalping might contribute to greater welfare, there are costs associated with both the primary and secondary markets that could work to counteract these effects—that is, welfare does seem to increase, but the distribution of this welfare is still uncertain.
Changing Landscapes
Ticket pricing is fundamentally a complex process, and often economically ambiguous. With the economic value of ticketed events so hard to determine, and behavioral economic concepts coming into play, the resale market is understandably a reflection of the many factors that go into pricing a ticket. Now, with online vendors at the forefront of ticket sales and techniques such as dynamic pricing (a strategy “where prices are adjusted in real-time based on market demand, competition, and other different factors, usually backed up by data” (Besinsky & Zanini, 2024)), the secondary market has flourished and reselling tickets is easier than ever.
Consumers who are unable to make it to an event can sell off their tickets, and even seek to make a profit. Those wishing to attend a “sold-out” event now have scores of inventories on the internet from which to pick not only the price but also the type and category of ticket most suited to them. The resale market is here to stay (and, several projections posit, grow), and banning scalping is only going to expand underground markets rather than “fix the problem” (Cline, 2024). With regulations and laws continuously changing, the ticket resale market is a dynamic environment that offers many interesting avenues of study.
References
Arnfield, I. (2023). What does Ticket Scalping mean?. www.verifiedvisitors.com. https://www.verifiedvisitors.com/blog/what-does-ticket-scalping-mean-what-are-scalp-tic kets
Atkinson, J. (2019). The Economics of Ticket Scalping – Jimmy Atkinson. jimmyatkinson.com. https://jimmyatkinson.com/papers/the-economics-of-ticket-scalping/
Besinsky, A., Zanini, A. (2024, April 2). What is dynamic pricing and how does it work?. Bright Data. https://brightdata.com/blog/web-data/what-is-dynamic-pricing?kw=&cpn=13219251752 &utm_matchtype=&cq_src=google_ads&cq_cmp=13219251752&cq_term=&cq_plac=& cq_net=g&cq_plt=gp&utm_term=&utm_campaign=web_data-us-search_generic-desktop &utm_source=adwords&utm_medium=ppc&utm_content=dsa-dca&hsa_acc=139317540 3&hsa_cam=13219251752&hsa_grp=126804232782&hsa_ad=657813936422&hsa_src= g&hsa_tgt=dsa-1730894752031&hsa_kw=&hsa_mt=&hsa_net=adwords&hsa_ver=3&ga d_source=1&gbraid=0AAAAADRtMyS78qyFbP18Spr_GQqnOIXO0&gclid=Cj0KCQiAuou6BhDhARIsAIfgrn6n6KSJLoNXTYAEgl2hebMN93pFOb7ytwnJpWK7C7QnLDV YM-xxgNQaAlPLEALw_wcB
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Courty, P. (2003). Ticket Pricing under Demand Uncertainty. The Journal of Law and Economics, 46(2), 627–652. https://doi.org/10.1086/377117
Happel, S., & Jennings, M. (n.d.). THE FOLLY OF ANTI-SCALPING LAWS. https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/1995/5/cj15n1-4.pdf
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Krugman, P. (1999, May 13). Thinking Outside the Box Office. Slate Magazine; Slate. https://slate.com/business/1999/05/thinking-outside-the-box-office.html
Leslie, P., & Sorensen, A. (2013). Resale and Rent-Seeking: An Application to Ticket Markets. The Review of Economic Studies, 81(1), 266–300. https://doi.org/10.1093/restud/rdt033
McKenzie, J., & Crosby, P. (2017, September 11). The economics of ticket scalping. The Conversation. https://theconversation.com/the-economics-of-ticket-scalping-83434
Swofford, J. L. (1999). Arbitrage, Speculation, and Public Policy Toward Ticket Scalping. Public Finance Review, 27(5), 531–540. https://doi.org/10.1177/109114219902700504
TicketLeap. (2023, September 14). Your Guide to Reselling Event Tickets. TicketLeap. https://www.ticketleap.com/blog/ticket-resale/
Web Series Reviews. (2024, October 18). Custom Market Insights. https://www.custommarketinsights.com/report/secondary-ticket-market/?srsltid=AfmBOo r5Y-kaWlGTEhQOsb6ytNlhbwBJXV08jBaS4MZWatr-Ypwf3Y_2