A Little Supply, a Lot of Demand: The Evolution of Ticket Scalping
We’ve all been there before. Your favorite artist just announced a show, and tickets seem impossibly cheap. However, by the time you get to their website – maybe even just a few hours after the tickets went on sale – all of the tickets are sold out. Dejectedly, you head over to StubHub, a ticket resale website. There you find the price has doubled, or maybe even tripled. But you buy a ticket anyway. Why? Because an imbalance in supply and demand in the market for tickets has created a thriving environment for ticket scalpers.
Ticket scalpers have been around since the 1800s, when they bought large quantities of tickets at physical box offices, then put them up for resale at an elevated price. These scalpers were known as “sidewalk men:” they would stand on sidewalks and resell tickets at the doors of concerts and shows. In one extreme example, a ticket for Charles Dickens’ second American tour in the 1860s had an original face value of $5. However, sidewalk men were selling them at the door for a whopping $50.
Scalpers had the ability to hike prices up so substantially due to supply and demand. When a show is announced, there are only a certain number of tickets available: namely, however many people can fit into the venue. Thus, there is a very inelastic supply of tickets, which leads to an inelastic demand: people are willing to pay a lot of money for tickets, since so few of them exist. Think about it this way: if you have your heart set on seeing Beyoncé, but all of her tickets are being resold at the $300 range, you will probably buy the expensive ticket anyway, since the only other option is not seeing the show at all.
Today, the supply and demand imbalance that paved the way for scalpers of the past has not changed. However, with the introduction of technology to the world of ticket purchasing, scalpers have become even more omnipresent. In 2016, the secondary market industry – the industry of ticket resellers – was reportedly valued at $8 billion. This number is growing, and it’s not hard to see why. After a mere 24 hours of being online, approximately 20% of tickets find their way onto secondary websites, including StubHub and VividSeats. This allows these secondary sites to hike up ticket prices to whatever the market demand will support. Thus, their revenue is the difference between the original price and the resale price.
The invention of “bots,” computer technology that tricks ticket sale websites, has increased scalping quantities even more. These bots use software to buy tickets almost as soon as they go on sale, filling out dropdown prompts in a matter of half-seconds and fooling the CAPTCHA technology (the “I’m a human” box you have to click). The speed and sheer quantity of bots gives them an advantage over humans. In a ticket war against them, we don’t stand a chance.
For this reason, actions have begun to be taken against bots. Primary ticket websites, including TicketMaster and Songkick, have begun taking more actions to verify that purchasers are in fact human. For example, LiveNation and TicketMaster have created a “Verified Fan” program, in which customers can input their information online in advance. After getting vetted by the company, they become eligible to buy presale tickets, bypassing any chance of bot interference. According to David Marcus, EVP of Music at Ticketmaster, the Verified Fan program has reduced scalping of their tickets by 90%.
The anti-bot movement has even made its way to the government. In December of 2016, as one of his last acts, President Obama signed an anti-scalping bill into law. This bill was heavily advocated for by Lin-Manuel Miranda, the creator of the Broadway show Hamilton. He argued that, “Tickets are taken out of circulation, punishing people who can’t afford to pay more than face value. The extra money doesn’t provide a better concert or show experience for you, the fan. Instead, it goes straight to the broker’s bottom line.” The bill outlaws bots, and makes illegal any participation in sale of tickets obtained using bots.
While the intentions of these primary market companies, and the government, are good, I tend to doubt that they will create a lasting effect on the price of tickets. Eventually, the market will take over, and the price will finally reflect the supply and demand imbalance. This demand-based pricing has already happened in many industries: think of airplane tickets, for example. Like concerts, the seats are priced differently. However, unlike concerts, the prices for an entire flight will increase if the flight is going to a remote airport, or happens during a holiday season. Why would this not be the case for events – to return to a previous example, if a Beyoncé concert is highly in demand, what is to stop her from hiking up prices hundreds of dollars?
While forces have protected ticket pricing from being subject to demand until now, I predict this will soon change. There are even signs in the industry: according to Pitchfork, “Ticketmaster has been kicking around the idea of “dynamic pricing,” where the price of tickets varies based on fluctuations in demand… since before the Live Nation deal, and there are signs it could soon become a reality.” If Ticketmaster, the leading primary ticket website, makes a move in the direction of demand-based pricing, surely other companies will follow suit. Soon, tickets could be sold in a more auction-based manner, responding directly to market demand. This, of course, would render resellers obsolete, as their job of finding the market price would already be done for them.
So, enjoy controlled ticket prices while they last – soon, we could be paying Stubhub prices for everything.