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Dr Steve Davies is Head of Education at the Institute of Economic Affairs and author of their new report, ‘Digital Resellers: the case for the secondary ticket market’.

Right now there is something of a campaign going on over the resale of tickets to events such as concerts and sporting events.

A campaign has been launched by a number of major figures in the music industry along with several sports organizations. Meanwhile there have been proposals for legislation to severely restrict the resale of tickets, through such measures as a 10 per cent limit on any markup or even an outright ban.

The MP most associated with this is Sharon Hodgson, the Labour member for Washington and Sunderland West, but these ideas have support across party lines, for example from Nigel Adams, the Conservative Member for Selby and Ainsty.

This is not a ‘got up’ storm but reflects widespread irritation on the part of the public, as a survey of social media or letters to the press reveals. However, the proposals being put forward are misguided, do not understand what the genuine problems are, and would actually make things worse.

People are complaining about the secondary ticket market, in which tickets issued by an originator (an event organizer or organization) are then resold to final users by the initial purchasers – often (but not always) for a markup. At one time this was done by touts at events. Nowadays it normally takes place online on facilitating platforms such as Seatwave, Viagogo, and StubHub.

Secondary markets in which goods are resold are a prominent feature of economic life – spot markets in commodities or ones for stocks and shares are examples of this for instance. These markets exist so that goods end up in the hands of those who value them most, when the initial primary market does not achieve this. In the case of tickets this means that access to events goes to those prepared and able to pay the most for them, which is the principle applied to most goods and services.

A market of this kind cannot exist without willing buyers and sellers. Nobody ifs forced either to resell a ticket or to buy a resold ticket. That they are willing to pay for them indicates that it is worthwhile for them. Obviously they would prefer to get the ticket at a lower price if possible, but the point for most is getting one.

Many buyers however are irritated by the lack of transparency in the market, and in particular by the phenomenon of tickets to events going on general sale and then only being available at high prices through the secondary market.

This happens not because of wicked touts or speculators or secondary markets per se, but because of severe flaws in the way the primary market now works.

Most originators withhold 50 per cent or more of tickets from general sale to the public. Instead they are given on preferential terms to insiders such as fan clubs, staff, and resellers who have a revenue sharing agreement. This creates an artificial scarcity of tickets in many cases, which inevitably leads to prices being bid up and also leads to many of the tickets given out in this non-market way being resold on the secondary market.

In addition, originators for various reasons often severely under-price tickets in the original issue, i.e. they price them at well below the market clearing rate. Consequently many who have managed to get tickets at the original artificially low price now find that they value the cash profit they can make for it more highly than going to the event (their original intention) and look to sell it on. There are also of course people who change their plans through force of circumstances and look to at least recover their outlay.

Finally there are speculative arbitrageurs who bet that the initial price is less than what many are prepared to pay and buy up tickets at the original price to sell on. Sometimes this is true but often not. This is no different from arbitrage in any other market.

In most cases people are able to get tickets on the primary market and the secondary market is small and corrective. However there are some stars and events (e.g. Adele, Sam Smith, Ed Sheeran) where the demand is so high that it is physically impossible for everyone who would like a ticket to get one.

Given that there are only two ways out: we can allocate this very scarce resource through the price mechanism with tickets going to those prepared and able to pay the most, or we can ration them out by another mechanism such as a lottery or queuing. It is not obvious that the second option is fairer – instead of benefiting those with more income or commitment it favours the fortunate or those with time on their hands. Sometimes no matter what you do life is not fair and some people are disappointed.

Imposing a price cap or even abolishing resale completely would stop secondary trading from correcting the faults of the primary market. Given the real demand for tickets the result would be an illegal black market with the trade being conducted by very unpleasant people.

12 comments for: Steve Davies: Banning touts would not fix the ticket market

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