Afternoon roundup

Oh the tabs. 

• Chris Quin is CE of Foodstuffs North Island. His chat with Morning Report on what they've been doing to get groceries through to Hawke's Bay, including helicopters....
• The nastiness is intrinsic to Dahl's work. Erasing it is a mistake. I still think that when rights-holders abandon the original works by making them unavailable, those works should enter the public domain. Especially if the author is already dead. 
• Looks like business-as-usual continues on at least one front. Government is set to impose a pile of compliance regulations on incorporated societies and there just isn't time to let them look at the regulations before they take effect. Government, despite the change at the top, is still trying to do too many things at the same time and risks making serious messes. 
• Dileepa Fonseca also points to government capacity constraints. "...Wellington's workforce is already overwhelmed coping with the central government's demands at the moment..."
• Yeah, it'd be great if it were easier to import and use plasterboard in rebuilding from a cyclone. 
• Headline says it all about building anything: "New Far North council dog pound balloons from $200,000 to $2.4m and can house fewer dogs."
• Look, if they were really serious about it, they'd have made it some kind of Commandment.
• University of Canterbury's Covid response was risible. 
• Effective Altruism in the classroom!
• Genetically modified trees that are sterile and so no wilding problem. But GE regs mean they can't be planted. 
• Bryce Wilkinson on some of the problems in the RMA replacement bills
• The perils of trying to curtail hazily defined 'disinformation'
• The Future of Long COVID
• We don't need laws against scapling. And if a platform like Viagogo can't reliably make sure it isn't selling fake tickets, people won't use it. 

Markets for lemons and ticket scalping

The past week's hooplah over ticket scalping missed what I think's the most fun problem in the whole mess.

How do you, as a third party, run a resale market for event tickets that are issued digitally by another agency that wants to see you fail?

There are real problems facing buyers. How can you tell that the ticket you purchase on Viagogo is authentic rather than fraudulent, and how can you tell that that same ticket has not previously been sold?

The problem is easy if you think about an integrated ticket issuer/reseller. The issuer can cancel the initial ticket if the person who initially bought it wants to sell it back to the issuer or to the issuer's reseller, then sell the new ticket.

In that setup, you don't have to worry about whether the person who sold the ticket to the reseller had previously sold a different digital copy of it to someone else. The ticket is cancelled, so any prior versions using that ticket's QR code would be void and simply wouldn't work if it showed up at the venue.

But a third-party on-seller cannot do that. And neither can anyone who bought a ticket and honestly wants to on-sell it once and once only. The sale then requires trust, because there is no way of verifying whether there were any prior sales. Even Viagogo can't do it because while it could check that it isn't selling multiple tickets for the same seat, it can't check whether that seat was previously or simultaneously sold on other platforms or privately.

So what's a solution?

One solution relies on the initial purchaser's reputation, and the buyer's reputation. If I buy a ticket for a concert and then offer that ticket on Twitter, from my real-name account, noting that I can't make the concert and that I'm taking offers - I know that I bought a legitimate ticket, and anyone buying from me knows that I would be publicly shamed if caught selling a ticket that didn't wind up working because it had been on-sold multiple times.

But that also makes me something of a hostage: if that buyer sells the ticket to someone else, whether once or repeatedly, then claims that the ticket didn't work - that buyer could attempt to extort me for a refund.

TradeMe has a lot of experience in making markets that work based on reputational feedback mechanisms, but they don't allow ticket on-sales on their platforms.

Another potential solution would have the payment held in escrow by a third-party platform pending verification that the ticket worked, but without the venue being willing to confirm whether a ticket worked, that too would have problems if a buyer went to the show then claimed to have been bilked.

And all the way through it, the initial ticket vendor absolutely does not want any of the secondary markets to work, in part because it would prefer to establish its own secondary market to be able to take some of the uplift in price for events it had initially underpriced relative to revealed demand.

Like I said - fun problem. Everybody's moralising about the rights and wrongs of buying something at a low price and selling it later at a high price (or losing your shirt because the venue had not underpriced the tickets relative to demand in the first place); it's far more fun to think about how these kinds of markets could work, and what happens when important players don't want them to work.

Trevor Mallard Agrees With Me

I wrote, in opposition to the former Labour government's legislation, initiated by Trevor Mallard, banning ticket scalping for the Rugby World Cup:

I also can see no particularly good reason that somebody with a ticket that somebody else values more shouldn't be able to make a buck in the transfer. Why should all the surplus go to the buyer?

Trevor Mallard writes today, after taking some stick for scalping (on-selling at prices above face value) some tickets for an event which he found he could not attend:

"I'm slightly surprised if promoters with whom I spend several hundred dollars a year on tickets complain when I sell some I can't use to someone who wants them using a Kiwi-based online auction."

He listed the tickets at face value, but let the auction run above $500 because he "knew that they were worth more".

"It's an auction system, I mean apparently there's some system when you can 'buy now'...I do [know] now because people have been telling me about it but I've never used it at all in the past."

The young people he had sold the tickets to had seemed perfectly happy when they came to pick them up, he said.

Exactly, Trevor. Shame you didn't see it that way when you banned everybody else from doing it a few years back. Would somebody offering to refund the money when caught have been given a break under your legislation?

HT: TVHE, Farrar, half of twitter....

Hit the scalping tab below for a rather extensive series of prior posts; this one's still my favourite.

Go Canucks!

CBC Vancouver interviewed me last week about prices and ticket scalping; the resulting feature aired Monday morning and is here. The CBC used a lot more of their interview with Mike Munger than they did of mine, but that was efficient.

A few bits that didn't make the cut:

• Economists are usually puzzled by scalping; why would the venue be leaving money on the table?
• In the music industry, the puzzle was largely solved by that the venue was in cahoots with the scalpers and earning a good chunk of those rents; but, I'd be surprised if the Canucks were selling blocks of tickets via StubHub.
• The Canucks are doing very well financially. Why might they be selling tickets lower than market clearing rates? To keep the loyalty of long term season ticket holders for starters: those folks might fail to renew tickets if they thought they'd been hard done by. And, the mix of fans at the game changes in ways potentially detrimental to television revenues and to merchandise sales; the Canucks have a more complicated maximization problem than just "get the highest possible ticket revenue."

We'd also talked a bit about the benefits of price gouging in Christchurch after the earthquake, but that went far too far afield for this piece.

I did chuckle that Mike was introduced as being a wacky libertarian while no such disclaimer was put on my bit.

Scalping - vertical integration

Further evidence that artists are now taking the rents from ticket scalping: Katy Perry's contracts specify that if the venue uses a secondary market, the proceeds go to her rather than to the venue.

HT: @AnnieLowrey

Previously...

Rugby World Cup

I'm scheduled for Martin Devlin's show on Radio Live this afternoon to talk ticket scalping. If the econ department had ever had a vote on "most likely never to appear on a national sports programme", I'd probably have made the finals. Lack of knowledge about rugby probably helps me here though - I can make hypotheses behind the veil and see what the rugby expert says when I talk to him on the show.

Here are some things I want to know, and hope to find out this afternoon.

• What proportion of seats for the quarter-finals, semis and finals are allocated via the lottery rather than through the international pool?
  • The more that go through the lottery, the greater the potential revenue losses from underpricing and the greater the benefits of scalping
• What proportion of folks getting a lotto ticket will be invited to buy a finals ticket? Is it completely random draw, or is there some algorithm running in the background that tries to match folks up with the ticket they'd be most likely (or least likely) to want to get? Will we ever get stats on the number of lotto invitations extended and the proportion that were accepted?
  • The worse the match between the "invitation to buy" and the buyer's preferences, the fewer the number of acceptances we'll have. Consequences depend on what happens with the rejected invitations. If the stats never come out, that's probably not a good thing.
• Suppose I win the lottery but am given the chance to buy a ticket either for a game I don't want to see or for one that's more expensive than I'm willing to pay. What happens to the ticket I turn down? Does it go back into the lotto pool? Does it go into the set of normal-priced tickets or into the set for hospitality packages?
  • If it goes back into the lotto pool, potential losses are higher. If it goes to the international pool, where profits are higher, that reduces losses but also perhaps explains the bizarre lotto set up where you kinda think you've got a shot at a ticket, but you can't tell in advance for which game or at what price level. In this latter case, it strengthens support for my "the whole thing's a sham" hypothesis; in the former, it weakens it but also increases the benefits of scalping.
• Suppose I buy a ticket at regular prices for the semi-finals, but the team I wanted to see there gets knocked out in the quarter finals. I'm in deep despair; I can't leave the house, never mind go to see the team that kicked my guys out of the semi-finals. How can I sell my ticket without the buyer worrying that it's counterfeit? Is there any kind of legitimate resale market like StubHub or TicketExchange? If not, why not? The absence of one of these reduces the amount I'm willing to pay for the ticket in the first place in the same way that I'm willing to pay more for an airline ticket that allows cancellations.

Again, I'm behind the veil here. But suppose I were the RWC organizer and I were organizing things. How would I set it up if I knew I had to give the appearance of having some seats available at low price for regular Kiwis, but I wanted to minimize losses at the same time?

I'd run the lotto for lowish priced seats for the popular games. I'd make sure that people couldn't choose in advance what price ticket or what game they'd be offered the chance to purchase. I'd make it really hard for them to on-sell that ticket so they decline the offer [prohibit on-selling at higher than face value]. I'd then run a background algorithm that made it more likely that folks who bought the cheapest seats for games were given the chance to buy really expensive tickets that they probably couldn't afford - ideally in another city. So folks buying cheap tickets to games in Invercargill would get the option to buy expensive seats for final games up on the North Island. Then when they turned me down, I'd put those tickets into hospitality packs or make them available to international tour operators. Voila! It looks like locals have a fair go at tickets for the good games, but most of the seats actually wind up being sold at market prices.

Maybe Martin Devlin can tell me how close actual practice is to how I'd be doing things were I in that spot. Again - I want the lowest possible losses for RWC because the government's on the hook for it one way or another. If it's the case that the veneer of broad access is what maintains support for what's likely around a half a billion dollars in total combined subsidies for the world cup though - I'd sooner peel that veneer back a bit (if it is veneer).

Strange country, New Zealand. I do rather a lot of work on topics like alcohol, minimum wages, voter knowledge - all using NZ data in an NZ context - tumbleweeds roll by. Niko Kloeten from the NBR calls me up Wednesday morning asking for the standard econ view on ticket scalping. I emailed him a few paragraphs a half hour later. Got a call that afternoon for TVNZ's breakfast show that afternoon for the next morning, then Larry Williams's Newstalk ZB drivetime show Thursday afternoon, and now this.

Folks coming in from Devlin's show would probably find these sets of posts of interest. Each one will bring up the posts with those tags.

• Ticket scalping
• Sports economics
• Economics of stadiums
• The kinds of things I find fun (perhaps too nerd humour, who knows)
• The merits and economics of alcohol

Otherwise, hit the "greatest hits" links over at the top on the right to see the more typical fare here. And who knows. Maybe someday Seamus Hogan will start blogging here again, in which case you might expect more sports economics posts.

Update: Martin thinks the lotto tickets stay in the lotto pool if they're turned down. Would be interesting to know for sure.

In defence of scalping [updated]

Niko Kloeten cites me in defence of ticket scalping over at the National Business Review.

Rugby World Cup ticket scalpers are being used as scapegoats to excuse the greed and incompetence of the government and the New Zealand Rugby Union.

The deluge of scalping-related stories has already started, with Trade Me removing listings for semi-final tickets.

You’d think scalping was illegal or something. Well, it is: the Major Events Management Act 2007, which might as well have been called the Pork the NZRU Act, imposed a maximum penalty of $5000 for this activity.

But far from being a crime, ticket scalping is a market response to under-priced tickets, as economist Dr Eric Crampton from the University of Canterbury explained.

The best argument for setting a binding price ceiling for sporting event tickets is that allocation by queuing may give you a more enthusiastic crowd than allocation by prices. And for a private firm, that's a fair enough decision. The increase in value of broadcast rights might be worth it.

But it's a lot harder to make that kind of case for a publicly funded event like the Rugby World Cup. The New Zealand government is to be on the hook for a fair few RWC costs; Christchurch City Council has wasted a ton of money improving the stadium to handle crowd numbers that it will never ever see again. Instead, it looks more like a transfer to rugby fans from those less keen.

Fortunately, the losses from the inefficient allocation mechanism are somewhat limited. Here's my best understanding of the ticketing mechanism.

A big chunk of tickets are set aside for distribution through Rugby World Cup Limited, many of which are sold through Official Travel and Hospitality Packages. I'd be surprised if that allocation weren't sold at market clearing prices. They can take up to half of the tickets for each match, and seem to focus on getting tickets for the higher demand games.

So a big chunk of the tickets for the most popular games are taken away. How to boost demand for the less popular games? Start by selling tickets in venue pool packs - folks willing to buy a ticket for every match played by a team or for every match played at a venue get early call. Suppose you're not willing to pay some high price, say $1500 - the website says nothing - $795 for the pool match of your choice ($6395 per person for a set of tickets to the semi-final and final games) (as part of a hospitality package) but you would be willing to pay say $1000 for a set of tickets including decent seats for bad games and bad seats for good games. If there's enough value in filling up the venues for the low expected demand games, then this isn't crazy; it's just bundling a good with a bad. They might then expect that the sunk cost fallacy will kick in and folks won't just throw out the ticket for the expected-to-be-boring games.

Half of the good seats for the good games are taken up by RWCL and sold likely at close to clearing prices. The bad seats get bundled with seats for boring games. How to get folks to buy more of the seats for the boring games? Give them a lottery ticket for seats in the best games - the finals.

But this still doesn't seem consistent with profit maximization. I know the debates around a la carte pricing in cable tv markets (here here here) but my impression had been that results there were somewhat specific to the cable TV industry: zero marginal cost of offering a larger rather than a smaller bundle of channels to a particular subscriber. The marginal cost for bundled rugby seats is the revenue that could have been derived from selling the bundled but unwanted seat to someone else. It just doesn't seem plausible that the gains from having a few more people buy tickets to games they don't wish to attend outweigh the losses from forgoing some higher revenues on the premium matches.

So why does the RWC set its pricing structure like this? It's not impossible that the structure is somehow profit maximizing even in the absence of an external political game. Concert tours used to sell tickets well below market clearing prices when those tickets were loss leaders for CD sales. But I'm having a hard time seeing for what the RWC tickets could be serving as loss leader.

It seems more likely that the pricing structure is targeted at an external political game. This would be consistent with Porter and Thomas's findings about sports ticket pricing in the US. It's hard to believe that the government would shell out about a half a billion dollars to support the RWC unless there were at least the impression given that regular folks would be able to buy tickets for some of the more important matches. Having a relatively smaller portion of tickets allocated through oddball lottery mechanisms tied to buying tickets for earlier matches gives everyone some chance at getting a ticket and so increases public support, or at least attenuates opposition, to the vast public subsidies.

That also would explain why the government would step in to make scalping illegal for these events. If most of the few seats allocated through this system wound up being on-sold to folks who could afford market clearing prices, voter support for the "tax (mostly the rich but other folks too), give us cheap rugby tickets" plan would erode; "tax (mostly the rich but other folks too), provide big subsidies so rich people could go to rugby games" is less popular.

And so I come out on the side of the scalpers. I'm most convinced that there should be no legislation banning on-selling. If the RWC wants to print customers' names on the tickets and to require photo-id at the gate, that should be up to the RWC. But there's no reason the state should be involved in helping to prop up the pricing mechanism other than by not forcing RWC to honour tickets that were sold outside of its stated contractual guidelines.

I also can see no particularly good reason that somebody with a ticket that somebody else values more shouldn't be able to make a buck in the transfer. Why should all the surplus go to the buyer? In that world, many tickets are bought up early by folks intending to on-sell at a profit and some poorer rugby fans who otherwise would have attended a game would instead watch it on Sky. But consider:

• Even the "cheap" tickets for popular games are going to cost a lot: tickets for the finals start at $400, at least for the tickets now available. Is it really horrible that we transfer a bit of utility from folks able to afford $400 tickets to folks who can afford to pay $1200? What would stop the person who would otherwise queue for his own tickets from queuing to buy tickets to scalp? In that case, everyone's better off.
• The RWC might then instead move to market clearing prices for all games, in which case it could afford to take on a bigger share of the overall costs of the event. The savings could be directed towards other things that make lower income rugby fans happy, if it's their utility you care most about.
• I also have a hard time seeing why the social welfare function should weight so highly the utility of rugby fans relative to everybody else.

Why the lengthy post on Rugby World Cup and scalping? Niko Kloeten over at NBR asked me this morning for a short bit on scalping in general - I gave him the standard economic case in favour of scalping, linked to at the top of the post. But now I'm scheduled for five minutes on Thursday morning's TVNZ Breakfast programme on the same topic. And the best preparation for that kind of thing is hashing things out in a Blogger window.

Update: video here.
Update 2: Fixed a couple of links, added some pricing info.

Gouging - another missed opportunity

The Christchurch Metallica show sold out in 21 minutes.

It was, by reports, awesome. Nothing from St. Anger, minimal from Black album, lots of classics, lots of Death Magnetic. I saw them in '91 in Winnipeg (too much Black album); this sounds like it was a better show.

And now I regret not having gone to find a scalper.

Ticket scalping's been a bit of a puzzle to economists for a while - why don't the artists charge market clearing (gouging) prices and cut out the scalper entirely? I've posted a bit on this here, as well as here here and here.

In other gouging news, the comments thread over on my piece in The Press has been, in short, hilarious. My favourites:

lisa #7 04:51 pm Sep 17 2010
this article is why everyone hates economists

I love that I am personally responsible for everyone hating economists. It may be true in our faculty meetings though.

Kiwi Anarchist #8 09:37 pm Sep 17 2010
...
What happened to The Left in this country? It's time to get off your backsides and start organizing and fighting for yourselves and your hard-won rights before people like Eric Crampton have them taken from you!

Bloody peasant!

Peak load pricing: Rugby World Cup edition

The New Zealand Minister for the Rugby World Cup (yes, such a portfolio exists) apparently reckons that tourists to New Zealand during the Rugby World Cup would prefer that there be no available accommodation than that it be available at high price. From today's National Business Review:

Rugby World Cup Minister Murray McCully has written to the Hotel Association asking it to persuade its members not to risk damaging New Zealand's tourism reputation by over-charging for accommodation during the rugby World Cup.

The event is still well over a year away but there have been reports of accommodation providers in Auckland ramping prices up several hundred percent above usual rates and adding long minimum-stay provisions.

The CEO of Rugby World Cup is more sensible:

Rugby World Cup chief executive Martin Snedden said last month that prices being charged in what would be a peak time were generally reasonable, and organisers were confident that the free market would lead to those overcharging having to reduce their prices or face the prospect of empty beds during the tournament.

We ought, of course, note that some package deals of tickets plus accommodation will see premium prices not because of hotel overcharging but rather because tickets for some events will be at below market clearing prices: the package deals provide a mechanism allowing markets to clear via prices rather than queuing. I'm with Snedden, though. All that's achieved by hotel operators charging less than the market can bear is that some visitors will be unable to find accommodation.

Scalping: another explanation

We've puzzled here at Offsetting about ticket scalping for rather some time. Porter and Thomas in the latest Southern Economic Journal give another potential explanation. If stadiums are mainly in the game of harvesting government subsidies rather than maximizing on ticket revenue, then having below market clearing ticket prices can make voters happier about the subsidy.

Using public choice analysis, we determine how government subsidies affect location and pricing decisions of sports teams. We explain how voter referendums can create suboptimal outcomes for local communities and identify winners and losers in sport team subsidies. ... Sport subsidies generate additional revenue for owners and players at taxpayer expense, and non-fan taxpayers subsidize both the team and fans. To increase political support for subsidies, teams lower ticket prices below the apparent profit-maximizing level, which may cause inelastic ticket prices and ticket shortages.

Most tellingly, they find large increases in ticket prices after referenda on new stadiums but before the new stadium is built.

This may explain some cyclical variation, but underpricing seems more an equilibrium phenomenon for some teams even well away from any subsidy vote. And, unless the venues are demanding that concerts renting the space not charge too much for tickets, it also fails to explain equilibrium underpricing in other related markets. I'm not sure we need a single grand unified theory here though. Concert underpricing reflected that it was a loss-leader for CD sales back when intellectual property was enforceable; sports game underpricing can partially reflect that the stadium is in a longer-run political game.

Assorted updates

• I'd previously noted the sad case of Janet Moses, drowned by her family in a ritual exorcism. The jury verdicts are now in: one uncle and four aunts found guilty of manslaughter; three others acquitted. All acquitted for the similar (but not fatal) treatment accorded to a 14 year old girl in the same incident. The TV news reports howls of outrage from the public galleries; the audience seems to have thought all should have been acquitted. We'll see what the Court deems appropriate for sentence.


• Another update on ticket scalping, from Slate:

  But even economists who think that tickets are badly mispriced can have problems with ticket scalping. In his Offsetting Behavior blog, economist Eric Crampton discusses another theory of scalping in a post that's probably the only essay in which you'll see an economist turn to an analysis by Trent Reznor of the Nine Inch Nails. Crampton argues that one of the reasons that scalping persists might be because venue operators find shady ways to share in the profits at the expense of fans and performers. Crampton notes that Reznor gives one very good piece of evidence that there's something shady going on here: Ticket sellers could end scalping tomorrow by just printing names on the tickets.

  Surely other economists have turned to Reznor before. No?


• I'd previously argued against two Canterbury philosophers in defense of sweatshops; here's a nice argument from a U San Diego philosopher in favour of sweatshops.

  Abstract:
  This paper argues that a sweatshop worker's choice to accept the conditions of his or her employment is morally significant, both as an exercise of autonomy and as an expression of preference. This fact establishes a moral claim against interference in the conditions of sweatshop labor by third parties such as governments or consumer boycott groups. It should also lead us to doubt those who call for MNEs to voluntarily improve working conditions, at least when their arguments are based on the claim that workers have a moral right to such improvement. These conclusions are defended against three objections: 1) that sweatshop workers' consent to the conditions of their labor is not fully voluntary, 2) that sweatshops' offer of additional labor options is part of an overall package that actually harms workers, 3) that even if sweatshop labor benefits workers, it is nevertheless wrongfully exploitative.

Maximizing a non-monetary utility function: Bayreuth edition

In my Assorted Links post, I noted some features of ticketing for the Wagner festival at Bayreuth.

I've been thinking on it a bit more and it looks to me like the organizers at Bayreuth have figured out a nice way to massively subsidize effort in local Wagnerian societies. In short, the Wagner opera festival isn't there so much to generate a profit for the organizers as it is there to serve as a prize for folks willing to work hard in their local Wagnerian societies.

The stylized facts:

1. Tickets are priced far below market price if you're willing to wait for nine years and assiduously fill in fruitless application forms for those nine years; only about 10% of tickets sell through this route.
2. Some tickets sold through very expensive package tours (and surely Bayreuth charges those package tour places much higher prices for their tickets)
3. Tickets distributed (at face value, but shorter/no wait) through local Wagnerian societies: some countries' societies (like NZ) have call on more tickets than they'd use; others are oversubscribed and must be allocated.

At a glance, it seems like a great mechanism for massively subsidizing regional Wagnerian societies: Bayreuth is a prize in a tournament game, not a market. The tournament game is putting in enough time and effort in your local Wagnerian society to ensure that you get a ticket sometime. The sum of time and effort put into those societies, by the winners and the losers, is greater than the value of the money that Bayreuth could redistribute for local promotion of Wagner if they instead priced the festival at market clearing.

I know nothing about this other than the three stylized facts above. Is my conclusion entirely insane?

Links and updates

• The Washington Post and New York Times have picked up on the biofuels tax credit story first reported on by Chris Hayes at The Nation (and which I'd blogged on here).
• NotPC points to a wonderful video of a Formula 1 car doing doughnuts. On snow. On artificial snow. In the desert: Dubai's indoor ski venue. Rand may have preferred the lit cigarette as symbol of man's mastery of nature. I'll take this.
• Tyler Cowen's review of the film The End of Poverty. Tyler usually walks out of movies he doesn't like. Forcing himself to sit through it would not have been cheap.
• Lubos Motl recommends a film Roissy would like.
• KiwiBlog approvingly cites New Zealand's Treaty Negotiations Minister on moves towards compensation. Cowen previously wrote on the impracticability of intergenerational compensation. It's worth reading.
• Solow on Posner on the economic crisis
• If ever there were a case for scalping, it would be at Bayreuth. The annual festival of Wagnerian opera has a nine year waiting list for tickets: you have to apply for tickets nine years in a row to have a chance at getting a ticket. Reznor previously discussed anti-scalping mechanisms. At Bayreuth, they go even further:

  If you are wealthy, buy a ticket on the black market. WARNING! In recent years the attitude of the Festival management has hardened not only towards the "scalpers" who trade in black-market tickets but also those who buy such tickets. A "scalper" is anyone who asks more for a ticket than its face value. The Festival management regard such tickets as void and invalid. There have been instances of individuals with black-market tickets being forcibly ejected from the Festspielhaus and in at least one case dragged from their seats. It is reported that offenders are advised to leave Bayreuth immediately and not to return. So if you use a black-market ticket, you must be prepared to be black-listed for life.

  The FAQ also notes that you can buy expensive package tours, including tickets, from approved agents. Sound familiar?

Assorted updates

I warned that crises are fuel for both poles. Richard Metzger at BoingBoing cries Marx was right!.

I see this as a test between Naiomi Klein and Bob Higgs. Klein says economic crisis is exactly what the elites need to help push us to further deregulation, weakening the state in favour of markets. Higgs warns rather that crisis is the health of the state. He provides a wealth of historical evidence making his case. The only real world case that might fit a Klein story is New Zealand in 1984; of course, she has the sign wrong on the normative aspect. Higgs is right today. Why a banking insolvency crisis turns into crackdowns on tax havens makes sense in a Higgs story. Think the G-20 Cartel is worried about the productive squirreling off their resources onces the bill comes round to pay for the the cartel's profligacy? For more on international tax competition, read Veronique de Rugy's work on the topic (at Cato and Mercatus).

If we're in an Atlas moment, Wesley Mooch and Fred Kinnan are winning. And there is no John Galt. If Sergei Brin and Larry Page disappear and later emerge on some Seastead built by Patri Friedman and protected by some Google-developed missile-defense system, I'll re-evaluate.

In other news, I'd recently discussed the economics of ticket scalping. James Swofford points me to a recent article in which he discusses how the scalping equilibrium may be optimal from the artist's perspective when a dynamic revenue function is considered. That argument corresponds to some of the arguments in the comments section about bands being able to maintain fan base by pricing concerts below market clearing.

A reply to Swofford by Spindler notes that scalpers may make artists better off by facilitating closer to perfect price discrimination where the artist is constrained against doing so, even where there aren't side-payments from scalper to artist (which Reznor discusses). Swofford's rejoinder argues that the artists still suffer a reputational loss from the existence of scalpers, which then hits their dynamic revenue function, and consequently the artists and ticket agencies lobby for anti-scalping rules.

This remains inconsistent with that scalping could be eliminated at relatively low cost by requiring photo ID and named tickets. It seems more likely to me that the artists and ticket agents lobby for anti-scalping laws to maintain the veneer of being against scalping while ensuring that they can profit from this side-market and its side-payments without suffering a hit to the dynamic revenue function.

Economics of Scalping: Trent Reznor edition

Economists have for some time been trying to figure out why concerts are priced below market clearing. Surely the artist does better by having fans allocate scarce supply by willingness to pay rather than by willingness to queue. The scalper profits by the arrangement rather than the artist, venue or promoter: why not reallocate the surplus back up the chain by charging market-clearing prices? Some candidate explanations, and rebuttals:

• Queuing generates news stories the publicity value of which outweighs revenues forgone
  • But why not achieve the same outcome by pricing only half of the venue below clearing and have premium seats sold at market clearing prices? Is it really plausible that there's more press from queuing than from stories about sales of $1000 tickets?


• Queuing sorts fans by fandom rather than by willingness to pay. This has benefits for the artist by increasing the average attendee's willingness to pay for complementary higher margin goods like t-shirts and posters, by ensuring that the mosh pit is filled with the most enthusiastic fans and thereby improving the concert experience for everyone.
  • But this could be achieved still by segmenting the venue; it doesn't explain why concerts without mosh pits (or active floor seating) are priced below clearing. Steve Landsburg likes the t-shirt explanation, but it's unclear to me why this predicts overall queuing rather than queuing for the floor seats and market-clearing prices for the rest.
• Contractual arrangements between artist and venue give the artist stronger incentives to promote sale of ancillary goods than to maximize profits over both ticket sales and t-shirt sales; see discussion of sorting by fandom, above.
  • Then why don't they write better contracts?

Trent Reznor, the genius behind Nine Inch Nails, provides some insight. In short, scalping could be stopped immediately, without price changes, if concert promoters or venues wanted to stop it: simply print names on tickets and check against photo ID at the door. Why don't they do it? Let's turn it over to Trent.

The ticketing marketplace for rock concerts shows a real lack of sophistication, meaning this: the true market value of some tickets for some concerts is much higher than what the act wants to be perceived as charging. For example, there are some people who would be willing to pay $1,000 and up to be in the best seats for various shows, but MOST acts in the rock / pop world don't want to come off as greedy pricks asking that much, even though the market says its value is that high. The acts know this, the venue knows this, the promoters know this, the ticketing company knows this and the scalpers really know this. So...

The venue, the promoter, the ticketing agency and often the artist camp (artist, management and agent) take tickets from the pool of available seats and feed them directly to the re-seller (which from this point on will be referred to by their true name: SCALPER). I am not saying every one of the above entities all do this, nor am I saying they do it for all shows but this is a very common practice that happens more often than not. There is money to be made and they feel they should participate in it. There are a number of scams they employ to pull this off which is beyond the scope of this note.

In short, the ticketing agents have already made a deal with the scalpers to split the surplus without appearing like jerks by having high posted ticket prices. As Eric Cartman would say, it's like having your cake, and eating it too.
What's NIN done about it? Again, over to Reznor:

NIN gets 10% of the available seats for our own pre-sale. We won a tough (and I mean TOUGH) battle to get the best seats. We require you to sign up at our site (for free) to get tickets. We limit the amount you can buy, we print your name on the tickets and we have our own person let you in a separate entrance where we check your ID to match the ticket. We charge you a surcharge that has been less than TicketMaster's or Live Nation's in all cases so far to pay for the costs of doing this - it's not a profit center for us. We have essentially stopped scalping by doing these things - because we want true fans to be able to get great seats and not get ripped off by these parasites.

I assure you nobody in the NIN camp supplies or supports the practice of supplying tickets to these re-sellers because it's not something we morally feel is the right thing to do. We are leaving money on the table here but it's not always about money.
Being completely honest, it IS something I've had to consider. If people are willing to pay a lot of money to sit up front AND ARE GOING TO ANYWAY thanks to the rigged system, why let that money go into the hands of the scalpers? I'm the one busting my ass up there every night. The conclusion really came down to it not feeling like the right thing to do - simple as that.

That story's consistent with the fandom explanations above. I can buy that the artist would want the most enthusiastic fans up at the front rather than the boring folks who can afford to pay $1000 per ticket. Giving an economics lecture is a lot worse if the students up front seem less interested than you think they ought to be, and I'd fully expect that the effect is greater for musicians. Why shouldn't they trade off some monetary income for being able to put on a show that's more fun for them? I certainly put non-trivial weight on how fun a given lecture will be for me to deliver; I wouldn't expect anyone else to do otherwise.

Reznor concludes:

My guess as to what will eventually happen if / when Live Nation and TicketMaster merges is that they'll move to an auction or market-based pricing scheme - which will simply mean it will cost a lot more to get a good seat for a hot show. They will simply BECOME the scalper, eliminating them from the mix.

Nothing's going to change until the ticketing entity gets serious about stopping the problem - which of course they don't see as a problem. The ultimate way to hurt scalpers is to not support them. Leave them holding the merchandise. If this subject interests you, check out the following links. Don't buy from scalpers, and be suspect of artists singing the praises of the Live Nation / TicketMaster merger. What's in it for them?

I'm a bit confused at this point. If the prior argument was that collusion between the ticketing agencies and the scalpers allowed an arrangement maintaining the facade of "fan friendly pricing" while allowing for extraction of rents, why would a merger between the venues and the ticketing agents allow that solution to become explicit with true market-clearing pricing? If the current constraint is wanting to maintain the veneer of low prices, what about the merger removes that constraint?

I'd argue instead that we're just seeing a trend towards market clearing prices because prior arrangements where concerts effectively served as loss-leaders for albums has had to change with file-sharing; now, the CD tracks are the loss-leader for the concerts and ancillary products, and we'd have to expect a move towards clearing via prices.

Reznor provides a nice compendium of links on scalping, including Russ Roberts' discussion over at EconTalk! Reznor listens to Roberts. Worlds colliding....

Update 23 March: I told you recordings are a loss leader for the concert. See Reznor's distribution of free EPs for folks signing up for email updates on his upcoming tour with Jane's Addiction (awesome) and Street Sweeper (never heard of 'em, but almost certainly worth trying on given the recommendation).