Applying Economics To Ticket Scalping

Last month a friend asked my opinion and I thought I might be able to apply my economic knowledge to a real life scenario (this almost never happens so I got quite excited). It had to do with the process of reselling tickets, and we debated whether or not this was greedy exploitation or simple capitalism. Is it right to be governed by money and the market or should social norms and ethics dominate?

My friend had bought two tickets to music concert for himself and another friend. However the concert was close to our exams so they decided not to go but instead sell the tickets. They cost my friend €66 and although he found several people who were willing to pay him €100, he decided to hold out for €150. He was willing to sell the tickets at a discount to his friends if they were interested and he made it clear that he despised ticket scalpers and that he was effectively one. (His justification was that b******ds did it all the time, he was only doing it this one time and had originally intended to go to the concert.) While making it clear that he was going ahead with it no matter what I thought, he asked my opinion.

I was horrified and completely disagreed. I made it clear that if it was me I would have sold it for cost price and nothing more. If I was a fan of the band I would have been happy just knowing someone else would get to enjoy their music. If I could make someone else happy without costing myself anything, I would do it. The extra money would be dishonest money as I had done nothing to earn it. I would deserve it no money than if I found it on the ground. Sure it would help me, but only by taking from someone else’s pocket.

I found his willingness to charge €150, almost treble the price particularly distasteful. It’s one thing to make a small profit for yourself, but if the profit is greater than the cost then that’s almost exploitation. My friend was essentially squeezing some poor punter dry, not based on any good reason but merely because he happened to buy a ticket earlier. I felt turning down an offer of €100 was pure greed. Society should be based on co-operation, not screwing every else over. To which I got the response: “Ah sure Rob, you’re a Communist, so you would say that.” (I argued I wasn’t a Communist, but it was clear that I was seen as the anti-capitalist in this debate)

At this point another friend was introduced as the “Heartless Capitalist”. He instantly took offense at my claim that selling the tickets at that price was immoral, by arguing ethics had no place in economics. He argued that my friend had no duty or obligation to any stranger and shouldn’t be forced to act like a charity and give his ticket away for free. He argued that there was nothing wrong with making profit and if there was then I should burn down the newsagent because it bought milk for €1 and sold it for €2. (My friend is prone to over the top rhetoric but I understand his point). All businesses involve profit and only a Communist would have a problem with that. If those tickets were sold in a shop there would be profit added on to the price so what was the problem with my friend doing it? All my friend was doing was replicating capitalism.

He further argued that no one was forcing the customers to pay €150. Clearly they would only pay that much if they really wanted to go to the concert. If someone was willing to pay that much why should my friend be forced to charge a lower price? It was a free agreement between two people, that made my friend money and let the other person go to the concert, surely everyone wins? If €150 was too high a price then no one would buy the ticket and he would be forced to lower it. After all there was excess demand at €100 so he was making sure the person who wanted the ticket most (and was therefore willing to pay the most) was the person who bought it.

It was clear that my Capitalist friend had mainstream economics on his side. All of our economics lectures would back him up. Our economics textbooks are full of examples like this backing up the argument of charging extra and making a profit. I argued that mainstream economics was fundamentally wrong and had the wrong priorities, which isn’t the best argument to use in an economics debate. Something interesting I noted was that my friends who were studying business or economics all thought selling the tickets at a higher price was perfectly fine, while my friends who studied history and social science were horrified. This reflects the different ideologies and teachings of the different schools.

I would like to say that we had a stimulating intellectual discussion that ended with us reaching a consensus or insight. Unfortunately almost no debates end that way. Instead our friends pestered us to stop having political and economical debates and instead talk like normal people. From experience debate usually end in shouting matches that create enemies and ruin friendships and are best to be avoided (though every night out I am inevitably dragged into one, probably because I am the only major leftie in our group). But still I think we adequately laud out the ground of the conflict between capitalism based on profit and a more humane outlook based on social norms.

5 thoughts on “Applying Economics To Ticket Scalping”

  1. I applaud your stance. You were/are correct from a moral vantage. Question is, can unfettered markets have a moral core? I doubt it, which is why governments have to regulate.

    1. True. Economists try to claim that the economy is fine without ethics or morality, but they cannot be ignored or dismissed. They (rightly) guide how people act and behave.

  2. The issue with orthodox economics is that it divorces itself from psychology and ethics. Behavioural economics, being in its infancy, witnesses this deficit, but it doesn’t provide models to deal with this.

    In my opinion (humble or otherwise), as a result of having been formulated as a result of the Age of Enlightenment, some still insist on treating economics as a rigorous science that can be fully modelled in the same manner as, say, physics. To exacerbate this, much economics are maths-based, and so when people attempt to counter misapplied mathematic theories with exposition (think Keynes’ “animal spirits”), they are acussed of having a weak hand.

    1. I think that’s one of the biggest changes that has to happen in economics. It has to stop pretending to be a science and lose the heavy mathematics emphasis. Instead it should accept itself as a social science and know that there are no fixed “laws” of economics but rather competing theories and schools of thought.

      Likewise economics needs to incorporate other fields. Psychology is the main one but the fields of politics, history, sociology and physics have a lot to offer.

  3. A person buying a ticket for triple the face value, values the concert and all the benefits that going will bring (groupies, drugs, getting laid, etc.) over the cash. It is a consensual exchange. The idea that it is immoral is an inane concept. The buyer can simply choose not to attend. No one is being deceived here. The problem (if you consider it a problem) in this case is that the ticket seller didn’t value the tickets properly so as to hedge for risk. The speculator owing to better information or a greater risk tolerance buys more or the tickets. He takes on the risk of selling the tickets. Everyone looks at the profit when the show sells out, but no one considers the possibility that he can’t sell the tickets and has to eat the loss.

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