Scalp ‘Em, Bucky! On, Wisconsin!
My alma mater, the University of Wisconsin, is going to the Rose Bowl this year. One of the student newspapers, The Badger Herald is upset that individuals are reselling tickets at a premium, and it is publishing a list of their names. From the article:
Wisconsin had 5,800 student tickets to sell. They went up for purchase on uwbadgers.com at 9 p.m. Sunday and were sold out by 9:20 p.m.
The above students had the nerve to put their Rose Bowl tickets up for sale on Facebook Marketplace within two hours of tickets selling out. Face value was $150. Some were trying to get the tickets for more than $400 a pop.
Truly, there is a special place in Hell for people who buy Rose Bowl tickets with the sole intention of profiting from them. It is entirely unfair to those who actually love this football team and were counting on a cheap face value ticket in order to make the trip to Pasadena an economic reality.
I understand more about economics than sports, so in my opinion, we’re simply seeing a correction of the market inefficiency resulting from setting the price of a ticket lower than equilibrium. For an individual whose utility from attending the Rose Bowl game is less than $400, it is rational to resell the tickets at a price that exceeds their face value. Instead of being labeled “the worst people on campus,” the individuals listed in the Badger Herald article should be admired for possessing the insight to forecast a market opportunity.
Contributors to Show-Me Daily have discussed previously how ticket scalping improves efficiencies in the market. Last summer, David Stokes led a team of Show-Me Institute interns and staffers on a free-market field trip that demonstrated how ticket scalping is a type of market transaction that can improve the welfare of both buyers and sellers.
The graph below illustrates the market for tickets to the Rose Bowl game. The face value of a ticket, P0, equals $150 and the equilibrium price, Pe, is higher than this level. From the article, it appears that the equilibrium price is currently approximately $400. At P0, the quantity of tickets demanded, Qd, exceeds the quantity supplied, Qs (i.e., there is a shortage). When individuals are prohibited from reselling a ticket at a price higher than its face value (i.e., when the price ceiling is enforced), dead-weight loss results.
Market for Rose Bowl Tickets
In the presence of scarcity (and tickets to the Rose Bowl are indeed scarce), the price system works to allocate goods and services. Prices coordinate individual action efficiently by communicating relative scarcities and preferences, and individuals signal their relative levels of demand through their willingness to pay. In order to buy a ticket, a person either gives up disposable income, or he reduces his consumption of some other good. When the price system is allowed to work unrestricted, the tickets will more likely end up with the people who have the greatest willingness to pay.
Critics of scalping say that these $400 prices prevent current students who have low incomes from buying a ticket because they tend to lack disposable income. However, tickets to this particular game are already scarce, and capping the price does nothing to alleviate this. This is illustrated in the graph above; when the price ceiling is enforced below the equilibrium price, then the quantity of tickets demanded exceeds the quantity supplied. In other words, even if an administrative entity prevented reselling the tickets at a price higher than P0, some individuals who have willingness to buy will still miss out on purchasing a ticket. For example, if the tickets were restricted to current students, then then fewer alums who have the means to pay $400 for a ticket will be able to buy one. Furthermore, banning scalping would harm low-income students more than it would help them, because scalping is a potential means for them to generate income.
Critics also say that the event is better off when the student section is packed with loud, rowdy fans. Because the secondary market drives up prices, fewer students may be able to attend, resulting in a crowd that’s more reserved. A rowdy student section certainly has some positive externalities, but these are impossible to measure.
Students at the University of Wisconsin routinely resell tickets at a premium for home games at Camp Randal. During my time as a student, I bought and sold Badger football tickets on several occasions. Why are tickets to the Rose Bowl game any different? Tickets to games against big rivals, like Ohio State or Northwestern, can sell for more than $150 each. This is simply a result of the law of demand. For certain football games (e.g., bowl games), just like any other product, the demand curve shifts to the right and results in a price increase.
The Coase theorem says that transactions will lead to an efficient outcome in situtations in which trade in an externality is possible, transaction costs are zero, and property rights are clearly defined (here, to students). It says that those who will be able to put the tickets to the most highly valued use will end up owning them. Because non-students are buying tickets on the secondary market in this scenario, it’s apparent that this group is not restricted to current students.