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Saying It Wants to Help Consumers, It Really Is Lobbying to Limit Their Choice
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Millions of tickets to sporting events, concerts and practically every form of entertainment in the U.S. are now purchased directly from other consumers using online markets. People who were not fortunate enough to be season-ticket holders or among the first in line now get a chance to attend the World Series or see the Rolling Stones. This secondary, or resale, market provides a level of consumer choice that did not exist just a few years ago.
That would all change if Ticketmaster Inc.–currently the original point of sale for more than half of all tickets sold in the U.S.–has its way. After flat sales in 2004 and 2005, Ticketmaster has decided that it wants to expand its operations into the resale market.
The problem for Ticketmaster is that the secondary market is much more competitive than the primary market it now dominates. Online marketplaces such as eBay, StubHub, Craigslist and many more already let consumers resell their tickets to one another. And millions do. It’s a classic market economy where the buyer and seller–not the intermediary–set the price. Excess demand often drives up the prices of tickets, inducing some fans who originally intended to attend an event to sell.
But competition evidently is contrary to Ticketmaster’s business model. So it recently launched an aggressive lobbying campaign to back new legislation in state governments across the U.S.–starting with New York, Florida, Massachusetts, and some others–to restrict free trading of event tickets. Any ticket sold at $1 or more above face value in the secondary market would be illegal unless it was resold by an issuer with a contract with the event’s organizer (like an NFL team or music venue); not surprisingly, Ticketmaster maintains exclusive rights to many of these relationships. Two states, Connecticut and Louisiana, have already adopted such “venue authorization” laws that effectively give Ticketmaster the exclusive right to resell tickets.
Ticketmaster’s usual markup–which can run as high as 30% or more of a ticket’s face value–as the original seller would, of course, remain perfectly legal. Ticketmaster then would also be the sole legal channel through which tickets could be resold at additional markups in the secondary market.
Lobbying efforts like Ticketmaster’s are routinely successful and often slipped into large omnibus bills before the end of a legislative term. You pay more for sugar, peanuts and all sorts of consumer products due to intense lobbying efforts by those industries. This sort of corporate welfare led University of Chicago economist and Nobel laureate George Stigler to conclude: “A third general set of powers of the state which will be sought by the industry are those which affect substitutes and complements. Crudely put, the butter producers wish to suppress margarine and encourage the production of bread.”
Of course, very few industries–sugar growers being one notable exception–will lobby policymakers with an explicit pitch to reduce competition. Rather, the quid pro quo will be decidedly more consumer friendly in tone: Legislators must protect the buyer. Indeed, yellow margarine was illegal at one time in some U.S. states–and remains illegal in Quebec–supposedly to protect consumers from an inferior product.
Not surprisingly, Ticketmaster has couched its lobbying as an effort to protect consumers from “back-alley ticket scalping.” On its Web site, Ticketmaster refers to its competition in the secondary market as “scammers” and “scalpers.” But Ticketmaster is fine with secondary sales if they add to its own bottom line.
In fact, Web sites like StubHub actually reduce scamming by guaranteeing the authenticity of the tickets sold through their sites and ensuring delivery before the event. They effectively eliminate the back-alley transactions that lead to fraudulent sales, reduced local supply and higher prices.
Indeed, Prof. Dan Elfenbein of the University of California at Berkeley has shown in academic work that laws prohibiting “scalping” actually reduce supply and drive up prices. It is easy to see why. If you resell your ticket on eBay, StubHub or Craigslist, you know that you are competing against many other sellers–prices are posted. If you get greedy, you won’t make the sale. Each seller knows that its competition is just one click away. And if a ticket seller attempts to commit fraud, StubHub and other resellers have legal recourse (and sometimes credit-card information) to make amends. The back-alley scalper, in contrast, faces limited competition on his own turf and cannot be easily held accountable.
It would be quite a remarkable feat if Ticketmaster got its way. In no other market can a seller dictate with such control how its goods will eventually be resold. Stocks and bonds are resold in secondary markets, as are cars, art and practically everything else. One could justify limiting the transferability of uranium or airline tickets for public-safety reasons. But why is it in the public’s interest that tickets to live events merit such treatment?
Consumers like yellow margarine; they like the choice of affordable tickets, too. No state legislator who truly wants to protect the ticket-buying public should ever buckle to Ticketmaster’s intense lobbying efforts. Ticketmaster already has a near monopoly in the primary ticket market, so why give it another in the secondary market? A free market is the best form of consumer protection.
Kent Smetters is a visiting scholar at AEI.
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