DATE DOWNLOADED: Tue Nov 7 20:58:18 2023

SOURCE: Content Downloaded from HeinOnline

Citations:
Please note: citations are provided as a general guideline. Users should consult their preferred
citation format's style manual for proper citation formatting.

Bluebook 21st ed.

David E. Harrington & Emma K. Harrington, Scalping Scalpers - Or Consumers, 35
REGULATION 18 (2012).

ALWD 7th ed.

David E. Harrington & Emma K. Harrington, Scalping Scalpers - Or Consumers, 35
Regulation 18 (2012).

APA 7th ed.

Harrington, D. E., & Harrington, E. K. (2012). Scalping scalpers or consumers.
Regulation, 35(3), 18-25.

Chicago 17th ed.

David E. Harrington; Emma K. Harrington, "Scalping Scalpers - Or Consumers,"
Regulation 35, no. 3 (Fall 2012): 18-25

McGill Guide 9th ed.

David E. Harrington & Emma K. Harrington, "Scalping Scalpers - Or Consumers" (2012)
35:3 Regulation 18.

AGLC 4th ed.

David E. Harrington and Emma K. Harrington, 'Scalping Scalpers - Or Consumers' (2012)
35(3) Regulation 18

MLA 9th ed.

Harrington, David E., and Emma K. Harrington. "Scalping Scalpers - Or Consumers."
Regulation, vol. 35, no. 3, Fall 2012, pp. 18-25. HeinOnline.

OSCOLA 4th ed.

David E. Harrington & Emma K. Harrington, 'Scalping Scalpers - Or Consumers' (2012)
35 Regulation 18 Please note: citations are provided as a general
guideline. Users should consult their preferred citation format's style manual for
proper citation formatting.

-- Your use of this HeinOnline PDF indicates your acceptance of HeinOnline's Terms and
Conditions of the license agreement available at
https://heinonline.org/HOL/License
-- The search text of this PDF is generated from uncorrected OCR text.
-- To obtain permission to use this article beyond the scope of your license, please use:
Copyright Information
 Scalping Scalpers-
or Consumers?
The proposed BOSS Act threatens the consumer-friendly
evolution of secondary ticket markets.

anice Lynch Schuster sat crouched at her computer key- ful for any person to utilize automated ticket purchasing soft-
board last January 29 at 9:59 a.m. The heater sputtered; ware to purchase tickets." Congressman Pascrell hopes to have
the snow flurried; and-as she recounted in a February 3, the federal government swing its wrecking ball at bots as well,
2012 Washington Post op-ed-Schuster was ready to com- recently announcing plans to reintroduce the Better Oversight
pete in the 100-click dash for tickets to Bruce Springsteen's of Secondary Sales and Accountability in Concert Ticketing Act,
"Wrecking Ball Tour" stop at Washington, D.C.'s Verizon Center. nicknamed the BOSS Act, a not-so-subtle nod to Springsteen.
Waiting with her were thousands of other die-hard Springs- One of its new provisions would explicitly outlaw "computer
teen fans and hundreds of ticket-purchasing "software robots" software" designed to buy up tickets as soon as they go on sale.
(bots). The BOSS Act would do more than just outlaw bots; it would
For good luck, Schuster wore her "Tramps like us" t-shirt shackle secondary ticket sellers. The act would prohibit brokers
("'cause tramps like us, baby, we were born to run"). Bots don't rely on who resell more than 25 tickets a year from buying tickets in the
luck; they rely on science-computer science. Schuster hoped to first 48 hours they are on sale. According to Pascrell, the goal is
grab a couple of tickets for herself; the bots, to grab a boatload to "reel in" secondary ticket markets-the act is a net designed to
of tickets for scalpers. scoop up large-volume scalpers while letting die-hard fans and
The dash was over by 10:10 a.m. Schuster banged her fist on small fish swim on. With fewer scalpers in the water, Schuster
the desk. The bots tugged their winnings offto the scalpers, while would have a much better chance to snag some tickets.
Schuster was empty-handed. Still fuming, she swore not to pay
scalpers "$300 or $400 for tickets in the nosebleed seats."
Congressman Bill Pascrell (D, NJ.) agrees, lamenting that sec-
ondary markets ask fans to pay a "king's ransom" to see Springs- We are fans of Bruce Springsteen, but not die-hard ones. We first
teen, AKA "the Boss," in concert. He argues that the "average" fan heard about the Wrecking Ball Tour long after tickets first went
can't compete and worries that soon "only people who can afford on sale, but immediately agreed, "We gotta go." After a 100-click
a $10,000 ticket [will] be able to see the Boss." meander, we bought a couple of tickets in the secondary market
Schuster wrote that she would like to "take a wrecking ball to see him perform at Gillette Stadium near Boston. We got great
to the [bots]." New York already has, recently making it "unlaw- seats, ones that are on the field, 55 rows from the stage.
Listening to Schuster and Pascrell, you'd think we paid thou-
DAVID E. HARRINGTON is the Himmelright Professor of Economics at
Kenyon College. EMMA K. HARRINGTON is an undergraduate majoring sands of dollars for our tickets. We actually paid $124 per ticket,
in computer science at Williams College. only $11 over the face value. How is that possible? Our short

REGULATION Fall 2012

 in technology.
The most important
innovation was StubHub,
founded in 2000. Suddenly
there was an online mar-
ketplace where thousands
of people could resell their
tickets to concerts, plays, and
sporting events. For a while,
the market stayed static
because, while StubHub
made it easy to compare seats
within sections, it was harder
to do so across them. Another
pivotal innovation, SeatGeek,
which was founded in 2009,
solved that problem. For
every ticket listed, SeatGeek
predicts its market value
and uses that prediction to
produce a "deal score," sup-
plying the consumer with
information about prices
conditioned on the quality of
the seat. SeatGeek not only
rates tickets, but also aggre-
gates them, collecting and
displaying tickets for sale on
the websites of brokers and
online marketplaces such as
StubHub.

Foot-tappers and head-

bangers This evolution of
secondary ticket markets
has been squeezing out the
profits arising from poorly
informed consumers being
out-bargained by scalpers.
But these improvements
don't eliminate the poten-
answer is, "The internet." Our longer answer is that the internet tial profits from sellers' attempts to reward their most strident
has made secondary ticket markets more competitive by moving fans, who make performances more exciting for everyone else.
most of the trading from parking lots to online resale market- Musicians often want to put their most enthusiastic fans up
places where consumers can more easily compare the ticket deals front because their enthusiasm is contagious. It's like a virus
0 offered by different sellers. but a healthy one, creating spillover benefits as it spreads from
4
Secondary ticket markets have evolved from local, isolated person to person. We are foot-tappers, not jump-and-jivers-
4
z
trades characterized by a woeful lack of information to a and certainly not head-bangers-so it may be efficient to rel-
4
0 national market with hundreds of thousands of participants egate us to sections farther from the stage.
0
who have their fill of information. From an economist's perspec- Markets often unravel attempts to favor one type of fan over
z tive, it's been an evolution from primitive markets to advanced another. The problem is that foot-tappers often have the money
0
F-
4
ones, moving closer and closer to the ideal ofa perfectly compet- to buy seats up front, creating profit opportunities that attract
F-
D
itive market. The evolution has not been steady, instead marked bots. Hence, it is possible to tell stories that rationalize legislation
by periods of rapid change initiated by important innovations like the BOSS Act as repairing a market failure.

Fall 2012 REGULATION

CONSUMER PROTECTION

The BOSS Act was first introduced in 2009 but died in com- the primary market and entering the secondary one without ever
mittee. It seems like a no-brainer that if it were enacted, different leaving our seats. On the day we bought our tickets-May 28-
people would be sitting in the best seats at Springsteen's concerts SeatGeek displayed tickets offered on StubHub and the websites
this year-more die-hard fans like Schuster and fewer foot-tappers ofS1 other secondary ticket sellers. Slightly more than 50 percent
like us. But while enacting the BOSS Act would have changed of the tickets displayed were from StubHub, including the ones
who first got their hands on tickets, it might not affect who we eventually bought. In the parlance of the Internet, SeatGeek
ends up with them. If die-hard fans are rational and markets are is a ticket aggregator.
frictionless, the hands of die-hard fans will be slippery and the One of the best known aggregators is Kayak, which compares
tickets will still end up in the mitts of foot-tappers like us. But the the prices of flights offered by different airlines. Kayak sorts air-
hands of die-hard fans may be sticky, so endowing them with a line tickets by price because most consumers just care about get-
head start in the race for tickets might succeed in changing who ting from city A to city B, making airline tickets nearly a homog-
sits in the best seats. enous commodity. People don't feel the same way about tickets to
The danger of the BOSS Act is that it's a wrecking ball that concerts and sports events, preferring to sit near the action rather
swings too wildly, harming consumers by knocking down struc- than far away in the upper deck. In this case, sorting by price isn't
tures that have evolved to make secondary ticket markets more as helpful because cheap seats in the upper deck aren't necessarily
competitive. The happy ending to the story of how we got our preferable to expensive ones near the stage.
tickets resulted from the recent evolutionary progress of second- SeatGeek sorts tickets by their deal score, which reflects the
ary ticket markets and might have been wrecked by unnecessarily gap between the asking price and the predicted market value
aggressive public policies. Nonetheless, we will explain how the of the ticket. How does SeatGeek predict the market value of
spillover benefits of enthusiastic fans justify attempts to reward tickets? It starts by estimating each seat's quality. This requires
them, how markets have evolved to do so, and how government that it answer questions such as, "Is Seat A in the last row of the
policies might help-but probably will hinder-markets. lower deck better or worse than Seat B in the first row of the upper
deck?" SeatGeek lets the fans decide by looking at occasions when
the seats were offered for sale at the same price. If more fans chose
Seat A than Seat B, then A is deemed better than B. By looking at
We first heard about the Wrecking Ball Tour from a Red Sox these sorts of choices throughout the stadium, SeatGeek creates
announcer, who mentioned that the Boss would be performing a function that summarizes the quality of different seats. It then
at Fenway Park in August. Within minutes we were on Ticket- adjusts the function for a particular event using information on
master, where we discovered that the only concert that fit into the seats already sold to produce an estimate of the market value
our schedule was at Gillette Stadium in Foxborough, Mass., of the seats. These are then compared with the asking prices, and
on August 18. voila, deal scores.
After entering our request for two of the best available tickets, Tickets are then tagged as "best deals," "great deals," "good
Ticketmaster asked us to type "genestwrexbam," a hurdle designed deals," "okay deals," "so-so deals," "bad deals," and "awful deals."
to thwart the bots of ticket scalpers. It's a test that humans can On SeatGeek's seating chart, the "best deals" are marked with a
pass more easily than bots can. In computer science lingo, these large green dot, screaming "Go, buy me!" while the awful deals get
sorts of tests are called CAPTCHAs, or Completely Automated a small red dot, whispering "Stop, don't get swindled."
Public Turing Tests to Tell Computers and Humans Apart. Put Looking at SeatGeek's seating chart of Gillette Stadium, we
simply, CAPTCHAs are automated systems used to distinguish eyed a pair of tickets five rows from the stage in Section A2. We
other automated systems from flesh-and-blood ones. drove through the Stop sign and clicked on the tickets. When
In response, scalpers have hired bot-complements, commonly we saw the asking price of $1,085 per ticket, we slammed on the
known as humans, who sit in boiler rooms and specialize in pass- brakes and backed up into our price range.
ing CAPTCHAs, lending their human hands to lift the bots over We next checked out a Go 40 rows farther back but still in A2,
the hurtle. speeding toward what we thought would be the finish line. The
By the time we got to Ticketmaster, the race between the price was $194 and we were itching to buy. A glance at the seat-
bots and die-hard fans was over, having been run months earlier. ing chart revealed other green dots a bit farther back. After some
Hence, we were being tested by a CAPTCHA that was standing investigation, we settled on a pair of tickets for $124 apiece, 50
guard over a nearly empty castle of tickets. The best tickets avail- rows back from our dream seats, but a whole lot less expensive.
able were in Row 15 of Section 303, just 11 rows from the top of They were only $11 above face value. No swindling here.
the stadium. "They are just like the ones that my mother bought Before we entered the secondary market, we agreed that we
for me and your aunt to see the Beatles at Philadelphia's JFK Sta- would spend up to $200 per ticket for good seats. We expected to
dium," David told Emma. "We could see the Beatles-they looked have our resolve tested, never dreaming that we would snag good
like little bugs on a faraway stage-and heard them singing, but seats for $124. Lift your hands and praise markets!
couldn't make out the lyrics." And praise SeatGeek! After driving through the first Stop sign,
We left Ticketmaster's website and went to SeatGeek's, leaving we obeyed SeatGeek's traffic signals, clicking only on tickets earn-

REGULATION Fall 2012

ing high deal scores until we reached our destination. We ignored other great deals closer to the stage, but we opted to go with one
tickets that earned lower scores because their prices were higher that was stunningly less than our price cap, which to us was the
than those of similar seats. Normally, we would have worried that best deal.
the low price of our tickets indicated low quality. With the aid of The dot circled in black is the least expensive pair of pit tickets,
SeatGeek, we knew that its low price was an indicator of a great at only $195 per ticket. Judged by the distance below our price
deal, not bad seats. If most people behave like us, sellers who set curve, it ought to be a spectacular deal. But SeatGeek only gives it
prices higher than the market price will lose all their customers, a deal score of 72, a passing but not high grade. Why? SeatGeek's
meaning the demand curve they face is very elastic. algorithm is flexible: able to reflect the differences in seats that
Ticket aggregators like SeatGeek also offer the potential of are not caused by discrepancies in the distance from the stage.
making the demand for listing tickets on StubHub more elastic. The algorithm doesn't know what it is about the pit tickets; it
Many people view StubHub as the "place to go" to resell their just knows that their market value is lower. We know that the
tickets, giving it some market power in setting its fee, which is cur- pit is pricy in its own way: in wear and tear on your sneakers and
rently 25 percent of the selling price. Prior to ticket aggregators, your muscles and your time. Ifyou add these implicit costs to the
potential competitors would have to incur significant costs to get purchase price, the yellow dot would move closer to the line and
their names "out there." Now they can get exposure via SeatGeek wouldn't appear to be a great deal.
and other ticket aggregators, putting pressure on StubHub to The pit occupies the most valuable real estate at a Springs-
reduce its fees. teen concert-right in front of the stage and stretching nearly its
entire length. But it has no actual seats. It is like building slums
Graphinggreat (and awful) deals | Looking at SeatGeek's seat- on Park Avenue, but as we will see below, it serves a purpose: only
ing chart for Gillette Stadium, we knew that we wanted seats on some people-the die-hard fans-like to slum it. And, Springsteen
the field. We had no interest in the front-and-center "pit area," wants them there.
which sounded vaguely dangerous and certainly exhausting. We
also had little interest in the border sections-we wanted to be
safely in the center of the action. To illustrate the idea behind
SeatGeek's deal scores, we created a data set of the 86 packages Making secondary markets more competitive is a great thing,
of tickets that satisfied our criteria. Regressing Priceper ticket on but it won't eliminate the bots as long as the prices of some
the inverse of the number of Rows from the stage produced the of the best seats are set below their market value. Many bands,
predicted price curve illustrated in Figure 1. The dots represent including Springsteen and his buddies in the E Street Band,
our best and worst options according to SeatGeek. want to give their die-hard fans a break on ticket prices, espe-
All of the great deals identified by SeatGeek are below our cially on seats near the stage. These head-banging, gyrating
predicted price curve, and all but one of the awful deals are fans produce spillover benefits for the rest of the crowd and for
above the curve. That makes sense: great deals are less expensive Springsteen, who is fueled by their energy. Quite simply, they
than expected given the row and awful ones are more expensive. are part of what everyone else comes to see.
The tickets we bought are represented by the grey dot circled in New York Times columnist David Brooks credits Springsteen
orange-they are in Row 55 and cost $124 per ticket. There were and his lyrics with influencing the way Brooks interprets the
world. In a column about his "Other Education," he describes
taking his daughter to her first Springsteen concert. "She had
Explaining SeatGeek's Deal Scores her hands clapped to her cheeks and a look of slack-jawed, joy-
ous astonishment on her face. She couldn't believe what she was
$1200 "Awful deal"
"Great deal" or"best deal" seeing-10,000 people in a state of utter abandon."
- 4
Our tickets The people who astonished her were not fans like us. We don't
1000
O Lneapest pit tickets do utter abandon, let alone head-banging. The only evidence of
-
-- Predicted price
800 -
our enthusiasm is a tapping foot and a slight smile. Unlike the
-

head-bangers, we don't share our joy, but rather bottle it up in

600 our private consumption. The social benefits of us going to the
CL~
concert are the private ones, accurately measured by our demand
CL 400 for tickets. On the other hand, the demand of the head-bangers
underestimates their social benefit by the spillover joyous aston-
200 ishment of others, which is what buttoned-up economists call a
positive externality.
n I I I I I I I I I
0 10 20 30 40 50 60 70 80 90
Rewarding head-bangers I From an efficiency perspective,
from stage
Rows
die-hard fans ought to be paid for their head-banging efforts.
The estimated regression using 86 packages offered on May 28,2012, is Predicted Price=
-13.6 + 12078 (1/Row) with a t-statistic on the slope of 9.86. Many bands try to do this by lowering the price of the best seats

Fall 2012 REGULATION

CONSUMER PROTECTION

below their intrinsic market value, hoping that their

die-hard fans will grab them up when they first go on MRket
sale. While die-hard fans are likely to know about the
"on-sale" date, so are bots. Head-banging die-hard fans (H) Foot-tapping people like us(F)
Bands are struggling to price-discriminate in favor of (s)Price
Price
their die-hard fans, not the bloodless bots, leading them 280
to experiment with alternative strategies and enlist the
220
government to help. To think more about these alterna- PF=ZZOF=
'0. 10,S
tives, let's create a simple economic model. pmt46O40

Suppose the market for tickets to the concert at pmkt=160

Gillette Stadium is composed of two types offans: head-
PH=10DF=S0
bangers (H) and foot-tappers (F). Also assume that the
best seats are the ones on the field near the stage and
that there are a fixed number of them, say 5,000. FigureIH
2 illustrates a couple of hypothetical demand curves, Q,7kt1 Q Z.5 Q*Z.5 Q mkt=4
one of die-hard fans (DH) and the other of foot-tappers Quantity of field tickets (thousands)
(DF). The marginal social benefit curve of the die-hard
fans (MSBH) Is above their demand curve by the value of the spill- Just equal to the market price. Hence, the social cost of giving his
over benefits they produce. In contrast, there is no gap between ticket to someone else is Just the market price. However, as more
the MSB curve and the demand curve of foot-tappers like us, i.e., and more tickets are taken away from foot-tappers, the social cost
the social value of having us there just equals the amount we are increases as foot-tappers with a higher and higher willingness to
willing to pay. pay are displaced. What is happening graphically is that transfer -

In our example, the market separates fans into winners and ring more and more tickets to die-hard fans moves foot-tappers up
losers-those having tickets and those deprived of them-by their demand curve, implying that the marginal social cost curve
setting the price at $160 per ticket. At this price, the quantity of on the left is Just a mirror image of the demand curve on the right.
tickets demanded by head-banging die-hard fans (Qkt =1,000) Starting at 1,000 die-hard fans (Qmkt=1000), Bruce and his
plus the quantity demanded by foot-tappers like us (Qkt = 4,000) E-fficiency Street Band should continue adding head-bangers
equals the fixed supply of field tickets (Qs= 5,000). as long as the social benefits (height to MSB) are greater than or
The ery astwhoot-appe
bouht atickt wan'ture Head-baices die-hard fans woul)ofen oe-theppigh efoe ustakin
Markets are blind to spillover benefits and, as a result, fail to equal to the social costs (height to MSC). Given the hypothetical
take into account the importance of head-bangers as producers curves of Figure 2, Springsteen should let an additional 1,500
of joyous astonishment in others. They are also blind to spill- head-bangers through the gate so that the best tickets to his
over costs, such as the spilled beer, obstructions, and grunts of concert are evenly split between head-bangers and foot-tappers.
increasingly corpulent people trying to find their seats after the Society is better off because the enjoyment of the additional
concert has started. Our model ignores spillover costs because we die-hard fans (area C) plus the value of the astonishment they
assume-for simplicity and kindness-that only die-hard fans and create (areas A plus B) exceeds the disappointment of displaced
punctual people like us attend concerts. foot-tappers (areas B plus C). Hence, reallocating these tickets
The market fails to allocate tickets efficiently, dampening the increases net social benefits by area A; equivalently, area A equals
mood and straight-lacing the experience. More die-hard fans the deadweight loss ofleaving the allocation of tickets to markets
should be let through the gate. But how many more? The answer that are blind to spillover benefits.
is easy-you should continue to let them through the gate as long The solution is easy, at least theoretically. To achieve the effi- -

as the social benefits exceed the social costs. cient number ofhead-bangers(QH=2,500), Springsteen needs to
Look again at Figure 2 and focus on the market solution, offer them a lower price than foot-tappers, a practice economists
where head-bangers buy 1,000 tickets (Qnkt = 1,000) and foot- call price discrimination. In our example, he should set the head- -

tappers buy 4,000 (Qgkt 4,000). The social benefit of adding bagnprc(R)t$10ndhefo-pigoe(S)t$2. .

another head-banger equals her willingness to pay for the ticket

($160) plus the value of the spillover astonishment she pro- Dvd n arcd hssltohwvr shr oipe -

duces ( $120). Hence, it equals the height to the marginal social mn.I eursSrnsent itnus ewe ed -

benefit curve at Qgkt =1,000 in the left-hand-side graph.bagranfotapesie.hem tdvdehmu.Ad

But what about the social costs? What's given up? That's easy: te trqie i oso edbnesfo ann uc
head-bangers displace people like us, the great overly washed bc yrsligtertcest ottpes ~. ems u
masses. Hence, the social cost of adding more head-bangers upbriaebtwnthm
equals the loss in social benefits of the foot-tappers they displace. Pirt h nent ikt eesl tbikadmra o

wanted to go to the concert because his willingness to pay was their tents and their places in line. Overly washed foot-tappers

REGULATION Fall 2012

would never suffer through tent-life for a coveted place in line. hard fans would be better off But would the BOSS Act change
Hence you could be pretty sure that the people at the front of the who sits in the seats? The answer depends on whether die-hard
line were die-hard fans. Scalpers did hire some professional line- fans have slippery or sticky hands.
waiters, but only for foot-tappers willing to pay a "king's ransom."
Now physical lines have turned into virtual ones as fans troll Slippery hands I With the help of the BOSS Act, Brown would
websites looking for news of the next tour and then wait at their have been able to snag tickets in the primary market. But would
computer screens hoping to snag seats the minute they go on sale. he have gone to the concert? Once he discovered how much
But scalpers can troll and wait with the best of them. They are in tickets were selling for on the secondary market, he might
the best position to know every on-sale date-it's their job-and have thought to himself, "Wow! Thank goodness I didn't tell
they have the bloodless bots to do the waiting for far less than the Courtney I got tickets." Selling the tickets is what a rational guy
flesh-and-blood line-waiters. Hence you can be pretty sure that would do; if Jamie felt that seeing Springsteen wasn't worth
the "people" at the front of the virtual line are not die-hard fans. the cost of buying tickets on the secondary market before the
In fact, they aren't people at all-they're bots. BOSS Act, then it shouldn't be worth forgoing the opportunity
The internet has also lowered the barricades, making it easier to sell them for the same amount after the BOSS Act. It doesn't
for die-hard fans to fall for the easy buck. Back before the internet, make him a greedy jerk; it makes him a predictable guy with
it wasn't always easy to find foot-tappers willing to pay a "king's slippery hands.
ransom" for tickets. Now, die-hard fans can make a quick buck The BOSS Act would put more money into the pockets of
more easily by selling tickets on StubHub. die-hard fans because some of them would cash in and others
The cult-band Phish goes to great lengths to get tickets into would save money because they wouldn't have to buy their tickets
the hands of its "phans" at discount prices. Their attempts are from scalpers. Since the BOSS Act would enrich die-hard fans,
subverted, however, by the fallen Phishes, who sell their tickets on their demand would increase and more of them would go to the
the secondary market. "True Phish fans" intervene by sneering "at concert. But not many more, assuming die-hard fans are rational
those [among them] who would scalp lawn seats for double the and it is not too difficult to resell tickets. Foot-tappers are likely to
price." But money is money; even Phish Heads are human; and pay enough to displace large numbers of die-hard fans regardless
only sticks and stones can hurt them. of whether or not the BOSS Act is enacted.
In this scenario, the BOSS Act would not eliminate the arbi-
trage opportunities. It would just change who exploits them. It
would no longer be brokers armed with heartless bots; it would
Congressman Pascrell introduced the BOSS Act to give fans be die-hard fans who know about the on-sale date. Changing
a better chance to grab tickets when they first go on sale. He the law to protect fans would help them financially, but it would
believes that the current system is rigged in favor of profes- not change who sits in the seats as long as fans are rational and
sional brokers whose bots claw tickets away from fans. The reselling tickets is easy to do.
BOSS Act would give fans a head-start by prohibiting brokers
from buying tickets in the first 48 hours that tickets are on sale Sticky hands I Brown is a sensitive man. He's in a band himself;
and from using bots. Without it, Congressman Pascrell asks, he's a bit of a poet. Once he got his hands on the tickets, he
"How is the average guy or gal supposed to compete?" began to imagine the experience of listening to "The River" live
They can't, he answers, saying, "The fan is getting ripped and looking at the joyous astonishment on Courtney's face. He
off, period." Janice Lynch Schuster felt ripped off As did Jamie couldn't let those tickets go; they already meant too much to him.
Brown, who spent four frustrating hours at his computer trying Going back to the real world-the one in which the BOSS Act
to buy Springsteen tickets on the day they went on sale, only to be wasn't enacted-we thought Brown wouldn't pay enough to buy
booted off empty-handed. As he told the Wall StreetJournal,Jamie tickets on the secondary market. But in our imaginary BOSS Act
then faced an unpleasant choice: either pay much more than he world, the instant he clicked on "complete purchase," the amount
planned for a couple of tickets from a secondary ticket seller or that someone would have to pay him in order to purchase his
skip seeing Springsteen perform this year. tickets exceeded Brown's old willingness to pay for them. In this
Suppose Brown chose to skip the concert rather than buy scenario, he holds onto the tickets and takes Courtney to the
tickets in the secondary market. He is a rational guy, and he could concert. His hands are sticky.
have weighed the benefits and costs of buying tickets on the sec- In this case, the enactment of the BOSS Act would change
ondary market and concluded, "No way." He may have thought, who sits in the seats because of the endowment effect, which is
"Thank goodness I didn't tell my fiancee Courtney that I planned behavioral economists' fancy name for sticky hands. A famous
to take her to the concert." experiment involving coffee mugs found evidence for the endow-
Suppose the BOSS Act were enacted in 2009 and scalpers ment effect: when some people were randomly given coffee mugs,
strictly obeyed the letter and spirit of the law. Given a two-day the mug-less were willing to pay less to acquire the mugs than the
head start and a bot-free marketplace, die-hard fans should have mug owners were willing to accept to sell them. Ziv Carmon and
gotten their hands on most of the best seats. No question-die- Dan Ariely, in a 2000 Journal of Consumer Research paper, found

Fall 2012 REGULATION

CONSUMER PROTECTION

evidence that Duke basketball fans likewise have sticky hands to guard the castle of tickets than for government to prosecute
for NCAA tournament tickets: students who won tickets in a lot- electronic looters after the fact. The government would be tilting
tery were willing to sell them, but only for much more than the at virtual windmills.
losers of the lottery were willing to pay for them. If the endow-
ment effect is as significant for Springsteen tickets, the BOSS Act
would increase prices in the secondary market and likely increase
the number of die-hard fans in attendance. That's bad news for Springsteen doesn't need the BOSS Act because he has found
foot-tappers. other ways to ensure that his die-hard fans capture the best real
Theoretically, the effect of the BOSS Act on the ultimate allo- estate at his concerts.
cation of the seats to concerts and other popular events depends He knows that his die-hard fans are more likely than foot-tap-
on the stickiness of fans' hands. The outcome is different depend- pers to be crouched over their keyboards when his concert tickets
ing on whether you apply the behaviorists' endowment effect or first go on sale. But he also knows that die-hard fans are human,
the logic of rational fans in a world of easy reselling. liable to succumb to the temptations of the secondary market.
He wants to lessen the temptation for them to sell their tickets,
What me? I'm not a scalper! I The BOSS Act would need to be saving the die-hards from themselves. Hence he raises the trans-
implemented in the real world, not an imaginary one where you action costs, turning the temptation into too much of a hassle.
can assume that scalpers strictly obey the letter and spirit of Specifically, Springsteen sells the best seats using paperless tickets,
the law. The BOSS Act requires anyone reselling more than 25 which require purchasers to bring their credit cards and driver's
tickets per year to register with the Federal Trade Commission licenses to get through the gate. Now if a die-hard fan buys four
and stand on the sidelines when tickets first go on sale. Scalpers tickets intending to resell three of them, he must accompany the
don't like standing in lines to register with the government or foot-tapping buyers through the gate, to the sneers of other fans.
on the sidelines while others are making a buck. He may even have to wait for the nonchalant foot-tappers to show
Many states imposed price ceilings on secondary ticket sales up. Similarly, foot-tappers may not like associating with grungy
prior to the internet. Most of those laws have been repealed fans, who are potentially unreliable escorts.
because they were unenforceable in the age of the internet and Paperless tickets may allow Springsteen to better price-dis-
had little or no effect on prices. The BOSS Act is likely to be criminate and, as a result, enhance efficiency. But this assumes
unenforceable as well, while soaking up enforcement resources that making tickets paperless doesn't change the fundamental
that would be better spent elsewhere. nature of the tickets, and hence has no effect on the demand
Our greater fear is that the BOSS Act would be a costly hin- curves of Figure 2. But it does. It is unavoidable. It says to con-
drance to the smooth functioning of secondary ticket markets. sumers, "You use them or you lose them." Even the most die-hard
The BOSS Act would inevitably have loopholes and limitations, of fans will have a lower willingness to pay for paperless tickets.
which large resellers, seasoned in dodging anti-scalping laws, People know that, well, stuff happens. A head-banger could get a
would exploit with ease. Some small civic-minded resellers might concussion; a family member could die; ajob could be lost. Foot-
exit the market, allowing larger resellers to raise their prices. tappers could have a parent-teacher conference; be invited to a
Other not-so-civic-minded resellers might go underground, hoity-toity dinner party; stub a toe.
fearing that registering with SeatGeek or placing tickets on Paperless tickets are more perishable and, hence, less valuable
StubHub could attract the attention of the police. They might to consumers than easily tradable ones. Over the course of his-
go back to relying on personal contacts with consumers and tory, the trend has been to make goods less perishable, not more.
return to the world ofbilateral bargaining. Others might stay on Refrigerators, preservatives, and genetic modification have all
the internet but change names frequently, reducing the benefits made food less perishable. Even cars last longer than they once
of branding in a market where trust matters. The point is that did. Making tickets more perishable flies in the face of all that.
the BOSS Act could reverse the evolutionary gains of secondary We believe that the efficiency losses from making tickets more
ticket markets, which have increased transparency and provided perishable, and hence less valuable would swamp the gains from
information to consumers. better price discrimination.
The rage against bots felt by fans has led Pascrell to add a new Many of the best seats to this year's Springsteen concerts were
provision to the BOSS Act, banning the software. This strikes sold using paperless tickets, but not in New York, where a state law
us as something that would be difficult, if not impossible, for requires sellers to give consumers the option of buying transfer-
government to enforce. Fortunately, fans' rage also creates able tickets. Hence, the New York law means that paperless tickets
incentives for sellers in the primary ticket market to ban bots cannot enhance price discrimination-anyone who intends to
from their websites. These sellers use increasingly sophisticated arbitrage will simply choose to get a transferable ticket. No such
CAPTCHAs designed to distinguish flesh-and-blood fans from law exists across the Hudson River in New Jersey. According to
bots. CAPTCHAs are not without their catches, especially now Ticketmaster, its unfettered use of paperless tickets for Springs-
that scalpers recruit human complements to work alongside teen's concerts in New Jersey reduced the supply ofthe best seats on
the bots. But it is still a lot easier for the primary ticket sellers StubHub by 63 percent relative to the New York concerts.

REGULATION Fall 2012

 StubHub and its allies in secondary markets are lobbying leg- calls for government intervention are profiteering disguised as
islators in other states to enact laws similar to New York's. So far, consumer protection.
they have convinced legislators in Connecticut and Minnesota Secondary ticket markets have become increasingly competi-
to introduce bills restricting the use of paperless tickets, but they tive over time because of innovations like online resale market-
haven't been able to get them enacted. Not surprisingly, they are places and ticket aggregators made possible by the internet.
being opposed by Ticketmaster and its allies. These innovations have increased the size of markets and the
Congressman Pascrell recognizes that stuff happens, but amount of information accessible to consumers. The increase
takes a different tact than New York to protect consumers hold- in competition has squeezed out most of the profits that used
ing paperless tickets. Rather than offering fans the option of to be gouged from ill-informed consumers buying from sellers
transferable tickets, Pascrell plans to add a new provision to the with market power.
2012 tour of the BOSS Act, requiring that sellers offer refunds Now, most of the profits that are attracting the bots and bro-
to owners of paperless tickets up to two weeks before the event. kers are due to the pricing decisions of economic agents in the
Pascrell wants to make paperless tickets more convenient for primary ticket market, including people like Springsteen. Bruce is
consumers while still curtailing arbitrage opportunities. a smart guy-listening to his lyrics ought to convince you of that.
Ifhe wants to funnel tickets to his die-hard fans, he can figure out
The pit I Springsteen has discovered a straightforward way to how to do it without the help of government regulations. In fact,
keep foot-tappers at bay-take away some of the best seats and he already created the pit, uses paperless tickets for some seats,
create an open space, which he calls "the pit." One fan described and partners with Ticketmaster to combat the bots.
the pit as an "amazing, exhausting, and exhilarating experience," Congressman Pascrell wants to "reel in" secondary ticket
a non-stop four hours ofjumping, jostling, and jiving. Another markets using the BOSS Act. If successful, it would scalp the
said that it's "not for the faint of heart." Head-bangers love the profits of scalpers and benefit die-hard fans, largely by letting
pit; foot-tappers love their seats. Quite simply, their preferences them become scalpers themselves. Getting more tickets into the
differ, allowing Springsteen to reserve the best spaces for his die- hands of die-hard fans might cause more of them to be in the
hard fans, even if he can't guarantee them actual seats. best seats, but logic and the ease of reselling make this unlikely.
The prospect ofstanding for hours on a concrete floor jostling Also, reeling in professional scalpers is not easy; states have tried
for space with sweaty strangers was too big a pill for us to swal- to do it in the past with anti-scalping laws and failed. Aggressively
low in order to be near the stage. Similarly, we wouldn't want to enforcing the BOSS Act would move some trades back into the
swallow horse pills, but in the 1990s a drug maker used a similar shadows, reversing many of the gains of greater transparency via
mechanism to discriminate between human and equine consum- the internet. Hence, the BOSS Act could unintentionally scalp
ers of one ofits medications.Johnson &Johnson sold Levamisole consumers rather than scalpers. The best way to scalp scalpers
to cancer patients and farmers. The version bought by cancer is to arm consumers with information, and the evolution of sec-
patients cost $6 per pill; the one used to deworm horses cost 6 ondary markets has increased fans' weaponry over time.
cents a pill. The active ingredient was the same, but the pill for It's fine that Springsteen wants to reserve the best real estate
cancer patients was easier to swallow, lacking the inert fillers of at his concerts for his die-hard fans and move foot-tappers like us
the horse pill. farther back. We are grateful to him and secondary markets for
The active ingredient of a Springsteen concert is the perfor- allowing us to foot-tap on the field, just 55 rows back from the
mance by Bruce and his buddies in the E Street Band. The pit is stage. Maybe one day we will start humming.
much more than inert filler because it adds to the vibrancy of
No. 1, (Spring 2009).
the concert. But it serves the same role as inert filler, making it
more difficult for foot-tappers to swallow the best real estate at "The Other Education," by David
"10 a.m. Freeze-Out for a Springs-
Brooks. New York Times, November
the concert, reducing the likelihood that die-hard fans will be teen Fan," byJanice Lynch Schuster. 26,2009.
able to resell their pit tickets. Hence it allows Springsteen to price Washington Post, February 3, 2012.
"Ticket Buyers Deserve to Have
discriminate in favor of his die-hard fans. "'Boss' Fans Again Run into Ticket Their Rights Protected," by Law-
Problems," byjennifer Maloney. Wall rence White. Huffington Post,June
If we were the Boss...|I Americans spent nearly a billion dollars StreetJournal,January 28, 2012. 12,2012.
in 2007 going to concerts, $5.4 billion going to plays, and a Bruce Springsteen and the Promise Ticket Masters: The Rise of the Con-
ofRock 'n'Roll, by Marc Dolan. W. W.
whopping $18.8 billion going to major sporting events. Sell- certIndustry and How the Public Got
Norton, 2012. Scalped, by Dean Budnick andJosh
ing tickets on the internet is a big business with interesting
"Focusing on the Forgone: Why Baron. ECW Press, 2011.
characteristics. It deals with perishable goods that are first sold
Value Can Appear so Different to "Uncapping Ticket Markets," by
by musicians, theater companies, and sport teams, and then Buyers and Sellers," by Ziv Carmon David E. Harrington. Regulation, Vol.
often resold in secondary markets. There are genuine concerns and Dan Ariely.]ournal of Consumer 33, No. 3, (Fall 2010).
that markets fail to reward die-hard fans and artists sufficiently Research, Vol. 27, No. 3 (2000).
"The Welfare Effects of Ticket
and, as a result, government ought to intervene. But with so "Lessons from a Scalper," by David Resale," by Phillip Leslie and Alan
much money at stake, the greater concern ought to be that E. Harrington. Regulation, Vol. 32, Sorensen. Working paper, 2011.

Fall 2012 REGULATION