Ticket Scalping Legalization: Boom, Bust, Dud or Thud?
It appears that the citizens of Missouri are about to recapture the right to sell their own investments for whatever price the market will bear. No matter what the monetary effects of this change will be, this is good news, as we have discussed before on this blog. Tickets are a commodity that the owner should be able to sell (or re-sell) for any price they wish to. In researching this issue, I found a great article on scalping published by the Cato Institute. The article gives a history of the issue and discusses the practical effects of the restrictions.
I promised earlier this week to give my prediction on the pricing effect of ticket scalping legalization, leaving the theory out of it, although the economic freedom theory is why I support legalization no matter what the pricing effects will be. I should warn you that I am not a trained economist, just an enthusiastic amateur who took one college course in it. So here goes…
The legalization of an illegal item will normally lead to price reductions; that is the conventional view and is backed up by economic theory. The most talked about subject in the issue is illegal drugs, though alcohol during prohibition would apply equally as well. During prohibition, demand remained more or less constant while supply decreased, or at least became harder to provide. Prices increased, as any fool could have predicted. What are the differences between scalping tickets and selling illegal drugs?
First, selling tickets is not illegal every time, as selling cocaine is. (We’ll leave aside the de facto legalization of small amounts of marijuana in many large cities.) I can sell my Cardinals ticket to you for face value, or less, just not for more. Second, buying tickets for more than face value is not illegal, only selling them is. Buying illegal drugs is also illegal, though in some cases the penalties are less severe. If the market gave a going price of $26 for a $25 face-value ticket, there has to be some downward pressure to lower the price slightly in order to avoid breaking the law.
As for the law, I will reference it here repeatedly but in reality, the penalties for scalping are so minor, and the social stigma for doing it so minor, that most people will not be affected by whether it is legal or not. Compare this to prostitution, which some have argued should be legalized. Even though the criminal penalties for prostitution are also minor, the social stigma, and threat of violence, are enough to keep most women out of it. Insert your own joke about your ex-wife here.
So where are we? If scalping is legalized, more people will probably participate in it, not because they were afraid of the criminal costs but because corporations, such as the sports teams themselves, will now be able to offer quick and convenient ways in which to scalp your tickets. So the supply of scalped tickets for sale (or re-sale) will go up. This supply increase and competition will exert downward pressure on the price of scalped tickets — Economics 101. However, because the number of scalped tickets does have a ceiling (total number of tickets available) and the price for most scalpers has a floor (if many would-be scalpers can’t get above face value; they will just go to the game themselves), that will exert counter pressure to keep the price of scalped tickets high.
My prediction is that legalization of scalping will have no effect on prices for the vast majority of sporting events or concerts. Only the most sought-after tickets will be influenced, such as Cardinal playoff games (apparently not going to be an issue this year) or the Led Zeppelin 2008 reunion concert at the TWA Dome, or whatever the hell it is called now. For major events, I predict a slight increase in the median price for tickets, as more scalpers will sell more tickets above face value to events with tremendous demand. However, the increased supply and competition will lead to a decrease in the mean price of those same tickets. So when you go the 2009 Baseball All-Star game downtown, the average cost of scalped tickets will be lower thanks to legalization, although more people will be paying above face value for their tickets.