npsBC89.tmp - Journal of Economic Perspectives Volume 17,...

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Some Economics of Ticket Resale Pascal Courty M ore than a thousand ticket brokers in the United States offer, at sub- stantial mark-ups, a wide selection of tickets for the theatre, concerts, sporting events and special events. According to some estimates, bro- kers resell 10 percent of primary tickets, and this Žgure goes up to 20–30 percent for top-tier seats (Happel and Jennings, 2002). In addition to brokers, who are licensed businesses, many scalpers resell tickets on the street. Event promoters typically try to discourage or prevent resale for proŽt. Most promoters limit block purchases and support other measures that restrict brokers’ access to tickets. Some promoters also actively support laws that regulate resale and restrict resale mark- ups. In contrast, economists usually argue that resale increases efŽciency, because it channels tickets to those consumers who value them the most. The textbook analysis of resale typically takes for granted that promoters deliberately choose to underprice and that this opens the door for arbitrages (for example, McCloskey, 1982). A variety of explanations for underpricing have been proposed: uncertainty over sales leads to a preference for underpricing rather than risk overpricing (Swofford, 1999); the social externality that being in a fuller audience provides a more enjoyable experience than being in a sparse audience (Becker, 1991); that customers of such events value being treated fairly (Kahneman et al., 1986); and as a related point in the case of sport events, that a constant price is necessary to attract loyal team fans (Salant, 1992). Krueger (2001) reviews these arguments and discusses how they apply in the context of the apparent underpric- ing of tickets for the Super Bowl. However, to treat underpricing as the fundamental cause of secondary ticket markets runs into several difŽculties. The underpricing explanation does not seem y Pascal Courty is Assistant Professor of Economics, London Business School, London, United Kingdom. His e-mail address is pcourty@london.edu . Journal of Economic Perspectives—Volume 17, Number 2—Spring 2003—Pages 85–97
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to apply well to scores of events, including many musicals and concerts. Concert ticket prices, for example, have dramatically increased in recent years, which presumably has reduced the incidence of underpriced events. Considering the top 25 concert tours in 2001, attendance Žgures collected by Billboard Boxscore Research reveal that only 39 percent of the concerts were sold out, and the average occupancy rate across all concerts was 84 percent. Brokers are often quite active in events that do not sell out; indeed, brokers are sometimes left with inventories of unsold tickets. At the most fundamental level, if proŽts can to be made in secondary markets, why can’t event promoters Žgure out a way to capture them? How can brokers survive in the presence of proŽt-maximizing promoters? This paper offers a perspective different from the conventional underpricing
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This note was uploaded on 02/24/2010 for the course ECON 1313212 taught by Professor John during the Spring '09 term at The School of the Art Institute of Chicago.

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npsBC89.tmp - Journal of Economic Perspectives Volume 17,...

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