Price Caps by Matching Platforms: The Case of Ticket Resales

Abstract

In recent years, a growing number of ticket resale platforms have imposed price caps on ticket trading. This practice has been perceived to protect consumer welfare, at the expense of less platform profit. However, we show that this self-regulation can counter-intuitively hurt consumers while benefiting ticket trading platforms, even if consumers are fully rational and unconcerned with price fairness. We demonstrate how this result may arise in a matching model of sellers and buyers. Sellers have a limited supply of tickets and are heterogeneous in their willingness to sell on a platform. The platform collects a royalty fee from every transaction but can impose a cap on the transaction price. We show that a stringent price cap may drive those sellers who would otherwise charge a high price out of the market, thereby reducing the competition on the seller side. As a result, the average transaction price may turn out to be higher than that in a market with no price restriction. We discuss the relevant managerial and policy implications.

Keywords: platforms, pricing, matching, game theory, ticket resales, public policy - legal