On the Economics of Ticket Scalping

sports business economics

We analyze ticket scalping during UAAP games using a simple demand and supply framework.

TJ Palanca https://www.twitter.com/tjpalanca
07-10-2013

Profiting off the Animo

DLSU has just won a game against Ateneo after two years of losses to the rival. (Photo: <a href='http://ph.sports.yahoo.com/photos/uaap-season-76-july-7-dlsu-vs-admu-slideshow/uaap-season-76-july-7-dlsu-vs-admu-photo-1373219641305.html' target='_blank'>Winston Baltasar</a>)

Figure 1: DLSU has just won a game against Ateneo after two years of losses to the rival. (Photo: Winston Baltasar)

Animo La Salle! My dear alma mater has just won against rival Ateneo in UAAP men’s basketball, 83-72, breaking a six-game losing streak to the Eagles since 2010. Hopefully it’ll continue throughout the season.

With the Green Archers’ losing streak broken, it’s only to be expected the the second rivalry game would be in very high demand. A combination of limited seats in the arena, intense demand, and intentionally low ticket prices, would give rise to the problem of ticket scalpers, or ticket price arbitrageurs. Despite measures taken to prevent scalping, the game last July 7 was still plagued with ticket scalping. They profit off school spirit, something which I find personally objectionable but economically inevitable.

It’s an interesting economic problem and it’s great fun to think up solutions for this issue, but first, we need to know…

How Scalping Happens

In order to find out how to curb scalping, we’ll use an economic perspective to analyze the behavior. It’s a very simple analysis and only makes use of basic supply and demand concepts. (Disclaimer: I am just a student and thus do not claim absolute accuracy over the various concepts used.)

The framework is set up using the following observations:

Using supply and demand to explain ticket scalping behavior

Figure 2: Using supply and demand to explain ticket scalping behavior

Usually, ticket prices are set below equilibrium, or at a very low price, to ensure that students are able to afford the tickets and support the game. This is apparent when the willingness to pay of students is almost always above the ticket price of P75 to P550. This creates excess demand for tickets and thus a disequilibrium, or a shortage of seats.

Scalpers then come in and take advantage of the fact that a student is willing to pay much more than what the ticket was originally sold for by buying it up first then reselling it at the maximum willingness to pay. Technically, this is called perfect price discrimination. Thus, he can sell it to students for a hefty margin - sometimes up to 8 times the original price. The area in red is the maximum profit that scalpers realize if they are able to exactly match the prices they charge with the students’ willingness to pay.

Sometimes, scalpers may even sell fake tickets to those desperate and reckless enough to purchase without inspecting the ticket. In other words, scalping happens because there are just too little tickets to serve an abundance of willing supporters that result due to prices being set at below equilibrium.

Why not just raise ticket prices?

Most economists propose an obvious and simple solution: simply raise the prices to equilibrium so that supply matches demand, increasing the producer profit and cutting away a substantial portion of the scalpers’ profit. Such an action is illustrated below: