Grade 9-12
,
Lesson

That’s the Ticket: The Economics of Ticket Scalping

Time: 30,
Updated: December 24 2018,

Objective:

Students will be able to evaluate how the market price for a sporting event is affected by ticket scalping and understand that the face value of a ticket and the market price are often different.

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.

Introduction

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.

Learning Objectives

  • Understand how the market price for a sporting event is affected by scalping.
  • Understand that the face value of a ticket and the market price are often not the same thing.
  • Learn how anti-scalping laws can be understood as price ceilings from an economic perspective.
  • Explain the likely effects of anti-scalping laws on the sports ticket market.

Resource List

Process

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 tickets 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 biggameslike the Super Bowl or a World Series gamethe market price may be many times higher than the face value.  However, for games with little demandlike when both teams are badthe 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 ceilingthat is, prices cant 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 eventin 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 students 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.

Conclusion

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.

Assessment

MULTIPLE CHOICE QUESTIONS

  1. A negative aspect of anti-scalping laws is that:
    1. They hurt ticket agencies.
    2. They prevent sell-outs.
    3. They cause people to pay more than they are willing to get tickets.
    4. They prevent the market from matching willing buyers and sellers.
  2. An anti-scalping law is an example of a:
    1. Price floor
    2. Price ceiling
    3. Equilibrium price
    4. Market clearing price
  3. The face value of a sports ticket:
    1. Is always higher than the market price.
    2. Is always lower than the market price.
    3. Can be higher or lower than the market price.
    4. Is always zero.

SHORT RESPONSE QUESTION

Write a short essay that explains both the positive and negative issues related to anti-scalping laws for sports tickets.