David Stokes has been doing a fine job covering the potential legalization of ticket scalping. There’s no question legalization is a good idea here, both for sellers and consumers. There are also some other economic points to consider.
The price of an item isn’t just what you pay for it in cash. The true price, to you, of a bag of groceries includes things like driving to the store, time spent browsing the shelves, waiting in line, effort expended pushing the cart, etc. The more difficult it is to get the thing you’re buying, the higher the real cost — regardless of what it says on the price tag.
Ticket-scalping policies are usually adopted out of a desire to keep prices down. If scalpers buy all the tickets for an event at face value, then turn around and sell them at a high markup, consumers are worse-off, right?
Not quite.
The real price of a consumer good is just a measurement — an intersection of supply and demand. If a baseball team sets the price of its tickets much lower than the real price that the market will bear, it hasn’t made the extra cost vanish. The team has simply shifted the cost in some way, perhaps by giving people an incentive to camp out all night in the rain so they can be first in line. The time and effort spent waiting in line is all part of the price of the ticket.
There was an excellent example of this sort of cost (which I linked to earlier this month) when a county in Virginia tried to sell several iBooks at $300 below market price. The result? "Mothers clutched their children for protection, people screamed as they were knocked to the ground, a stroller was demolished, cars inched through the crowd…" Economist Alex Tabarrok noted:
You can get rid of the market but you can never get rid of competition. Goods not allocated by market prices have to be allocated somehow and so long as goods are scarce there will be competition to obtain them, if not by outbidding competing buyers with money then by outbidding them in time spent waiting in line, doing political favors or some other method.
What happened in Henrico county is the same type of thing that happens when there is a price control.
Controlled prices rise above the nominal price tag, despite all efforts to keep them low. Tabarrok goes on to point out:
It’s very important to notice that that the shop owner gets your money but does not get your time. Thus, money expenditures are a transfer but time expenditures are a waste.
The best way for our hypothetical baseball team to keep real prices low is to sell tickets for what they think the market will bear. And the best way for politicians to keep real prices low is to get out of the way — let people trade, sell, give away, or destroy the tickets they’ve legally purchased.
Continue reading "You Don’t Count the Cost" »