Parasitic or welfare enhancing? – the role of the secondary market for tickets

Imagine that the team you support has made the final of a major competition or a your favourite band is playing a live concert this summer. You desperately want a ticket and are willing to pay the advertised price. They go on sale at 9.00am in the morning and you go on-line at 8.59am but unfortunately the webpage will not load. You keep pressing the refresh button but with no success. Eventually, annoyed and frustrated, you give up at 10.00am!

Tickets for sporting, musical or other live shows are initially sold by people who organise the events in two ways. They may choose to sell some or all of the tickets directly to the customer. For example you can buy tickets for a West End show from the box office in the theatre. With some football games it is still possible to buy tickets on the day at the stadium. Another approach is to sell some or all of the tickets via an authorised ticket agent. These businesses are usually members of STAR (The Society of Ticket Agents and Retailers) and the organisers of the sporting, musical or live show provide them with tickets to sell on their behalf. Some of the larger and well known agents such as Ticketmaster, Ticketline and Seetickets usually sell the tickets at face value although some booking fees are often added to the price. This initial sale of tickets by either the event organiser themselves or an agent acting on their behalf is referred to as the primary market.

For example, British Athletics sold all of its 130,000 tickets for its two day Anniversary Games on the 26th and 27th July via its authorised ticket agent in 75 minutes!! However an internet search for this event will quickly reveal that tickets are still available!! Unfortunately in most cases the advertised price will be far greater than the face value of the ticket. How is this possible? The answer is that the internet has helped a thriving secondary market for tickets to develop. The secondary market refers to situations where people who have already purchased tickets through the primary market re-sell them to other members of the public. Prior to the internet the main way of buying a ticket in the secondary market was to visit the venue on the day of the event and hunt for some-one willing to sell. However technology has dramatically reduced these transaction costs and made it much easier for potential buyers and sellers to make an exchange. For example companies such as Viagogo, Seatwave, GetMeIn and Stubhub have created websites that allow members of the public to buy and sell tickets. As Viagogo publish on their webpage:

You are buying tickets from a third party, Viagogo is not the ticket seller. Ticket prices are set by the seller and may be above or below face value.

Why does this secondary market exist? An economist would argue that it can only happen if the quantity of tickets demanded is greater than the quantity of tickets for sale at the price set by the event organiser. If this was not the case then customers would be able to buy tickets through the primary market on the day of the match, concert or show. The puzzle is to explain why prices do not rise in the primary market. If the quantity demanded of any product is greater than the quantity supplied then market forces should put upward pressure on prices. However it would appear that many of the event organisers appear to resist this incentive and consistently set prices below the level that would limit demand to the number of tickets available. This leaves an opportunity for sellers in the secondary market to sell tickets much closer to their market clearing rate. Navin Kekane, the business operations director of Stubhub, stated that

What we do is all about supply and demand, and you can sometimes find tickets at below face value.

Some of these companies in the secondary market have recently established formal partnerships with a number of English Premier League (EPL) football clubs and other major sporting bodies. For example Viagogo have signed deals with 10 EPL clubs while Stubhub have deals with 3 EPL clubs as well as Leicester Tigers and the Lawn Tennis Association.

However some observers have expressed grave reservations about the growth of the secondary market. For example Malcolm Clarke, chairman of the Football Supporters Federation, stated that

At the moment if you are fan trying to sell a spare ticket and are not authorised to do so then you face a criminal conviction, even if you sell at the face value.

But secondary ticketing exchanges, because they are authorised, are allowed to do so. Many clubs grant these agencies the right to allow the re-sale of tickets for their matches at above face value. I don’t think that can be right.

Joe Cohen, the founder of Seatwave counters that

Touts is an emotional, dehumanising word. The reality is that they are just speculators. No one likes speculators until you need something from them.

Some have called for more regulation of the secondary market. For example Sharon Hodgson, Labour MP for Washington and Sunderland West, unsuccessfully tried to get a Private Members Bill through Parliament which would have made it illegal to re-sell tickets for more than 10% above their face value.

Articles

Secondary ticketing: Inflating sport prices or useful service? BBC News Bill Wilson (13/5/13)
Sold out: Are Rihanna, Rolling Stones and Justin Bieber fans being ripped off by so-called secondary ticket websites? The Daily Mail Adam Luck (19/1/2013)
Olympic anniversary athletics event sells out in 75 minutes The Guardian Owen Gibson (19/2/2013)
Is this a new golden age for ticket touts? The Observer Laura Barnett (14/4/2013)
5 live Investigates: ‘legalised ticket touting’ by Premier League clubs BBC Sport Andrew Fletcher (2/12/2012)
StubHub UK expands into Premier League Ticket News, Jean Henegan (4/9/12)
Football fans lose out on £64m of tickets due to absent season ticket holders Daily Telegraph, (16/8/12)

Questions