FRED and the Federal Budget Interactive Lesson
Students will learn that anti-scalping laws effectively impose price ceilings. Students will apply their knowledge of supply, demand, market prices, voluntary trade and price ceilings to analyze this market.
Many states have laws related to ticket resale for sporting events and concerts. These laws are commonly referred to as anti-scalping laws. While there intention is to protect ticket buyers from fraud and high prices, students will recognize these laws as price ceilings. The same supply and demand analysis conducted on other forms of price ceilings can be applied to the interesting world of sports tickets. Students will apply their knowledge of supply, demand, market prices, voluntary trade and price ceilings to analyze this market.
The United States and other market economies regulate the price of some products by setting a legal maximum or minimum price. A price ceiling is a maximum price that can be charged for a good, as set by law. When price ceilings are set below equilibrium, it results in increased quantity demanded but decreased quantity supplied and a shortage occurs.
1. Read the following quote from a past USA Today sports section , “Care to pay $1,000 for a No. 2 lead pencil? How about $550 for a key chain, or $51 for an unused coaster? Did we mention we'll throw in free tickets to Saturday's Big Ten football showdown between Ohio State and Michigan?” Ask students what could possibly explain this strange situation that sometimes occurs outside major sporting events? [Some may identify that these college students are trying to get around an anti-scalping law.]
2. Ask your students to define ticket scalping and to list examples of ticket scalping they may have encountered in their own lives. [Most will know this has something to do with selling tickets for a high price. Explain that ticket scalping is defined as selling a ticket to an entertainment or sporting event above the ticket’s face value.]
3. Ask students why someone would pay more than the face value for a ticket. [Students will mention that fans may really want to go to a game that many others want to see as well.] Use this opportunity to explain that in economic terms, the issue is that there is very high demand and a limited supply. Show Visual 1, a supply and demand graph for Super Bowl tickets, to explain why this would lead to a high price.
4. Next, ask students if the face value of a ticket is the same as the market price for a ticket [For most games this is of course not the case. Explain that for “big”games—like the Super Bowl or a World Series game—the market price may be many times higher than the face value. However, for games with little demand—like when both teams are bad—the market price may fall below the face value on the ticket.]
5. Explain that some communities have developed anti-scalping laws. These laws do not allow fans to sell tickets to other people for more than the face value—no scalping allowed! A 1931 law in Michigan (Michigan Compiled Laws § 750.465) makes it illegal to resell a ticket above its face value price without the written consent of the event operator and venue operator. According to that same law, it is illegal to resell season tickets if they have the ticket holder’s name on them and the tickets state they are non-transferable. This article provides a summary of such laws from around the country: https://seatgeek.com/tba/articles/ticket-resale-laws/
6. Introduce the term price ceiling. Explain that a price ceiling is a maximum price that can be charged for a good, as set by law. Well known examples of price ceilings include rent control laws in many large American cities. These laws are designed to protect renters from high rental charges and to help the less well-off find affordable housing. Ask the students to work in groups to draw a supply and demand graph and represent a price ceiling on this graph. Optional: Show students the Virtual Economics video on Price Ceilings and Price Floors.
7. Next, ask the students to predict what the effects of such a law might have on the buyers and sellers of tickets. Encourage them to use economic thinking and the supply and demand graph they just constructed. [Some students will expect this law to keep prices lower and protect consumers. Others will understand that this law really creates a price ceiling—that is, prices can’t rise above the ceiling. Price ceilings always cause demand to exceed supply and shortages to occur. Show students Visual 2, a supply and demand graph illustrating the effects of a price ceiling. In this case, there are a couple of possible outcomes. Those that value the game the most may not attend the event—in other words, those that have the tickets will go and not participate in a mutually beneficial transaction by selling the tickets at the market price to those willing to pay. Sometimes, however, people will choose to break the law or a black market will occur for tickets. This explains the opening quote about the University of Michigan student’s behavior.]
8. Make sure this final point is clear. When a scalper and ticket-buyer come together to make a transaction, both parties benefit (that is, utility is enhanced for the buyer and the seller) because the scalper valued the money to be received more than the ticket, and the ticket buyer valued the ticket more than the money they had to pay for the ticket. Anti-scalping laws in some states mitigate the extent to which these mutually-beneficial exchanges can occur.
Ticket scalping can be a controversial practice. Selling tickets to sporting events, on a secondary market for more than face value, is often seen as an exploitive practice. However, from an economic perspective, the scalping of tickets can be viewed as mutually beneficial trade. In other words, those that sell the tickets value the money more than the tickets and those that buy the tickets value the tickets more than the money, hence both gain from the transaction. Some communities have passed laws designed to stop ticket scalping. From an economic perspective, these laws can be viewed as price ceilings. Price ceilings cause shortages and, in the sports and entertainment ticket markets, frequently cause a black market to occur.
Have students visit a website like www.stubhub.com . Ask them to find two sporting events from their local area where the market price exceeds the face value. Ask them to demonstrate this situation on a supply and demand graph. They will also have to visit a website that shows what the face value of the ticket is in order to see if the ticket prices on Stub Hub have exceeded the face value.
Discussion question: If tickets sell for above face value on the secondary market (like through scalping or on Stub Hub) this suggests that professional sports leagues underprice their tickets. Why might they do this? [One potential theory deals with the image of the sports team or music artist. Most teams and artists feel that it is crucial to their image that their venue be sold out. After all, a sold-out venue lends value to attending and may even help a team win. Secondly, a sell-out crowd maximizes complementary revenues from parking and concessions. Another reason to desire a sell-out crowd occurs in the National Football League. The NFL’s blackout rule prevents local television broadcast of a game that is not sold out. Failing to sell out a game, therefore, has negative effects on television revenue and the ability for a team to widen the fan base.]
Ask students to read this recent article about the prices of tickets during the 2016 World Series: http://www.cbssports.com/mlb/news/cubs-indians-world-series-game-7-tickets-standing-room-only-seats-hit-four-digits/ Have a discussion around the following questions: Demonstrate on a supply and demand graph why the prices for World Series tickets in Chicago were so high. [Students draw a supply and demand graph with the demand curve shifted far to the right, driving prices up.] Are these very high prices a problem and would an anti-scalping law be effective in solving the problem? [An anti-scalping law may keep some sellers from selling at such high prices. The law could also lead to a shortage of tickets available to those wanting to buy them on the secondary market. It could also cause a black market to develop where re-sellers operate “under the table."]
MULTIPLE CHOICE QUESTIONS
SHORT RESPONSE QUESTION
Write a short essay that explains both the positive and negative issues related to anti-scalping laws for sports tickets.