The Enigma of Ticket Exchanges (and Other Reselling Markets)

Abstract

The literature establishes (and practice confirms) that sellers can benefit from allowing consumers to purchase in advance of the date of actual consumption (e.g., concert tickets, sporting events, etc.). Because of this advance purchasing, consumers can find themselves either with a ticket that they no longer want, or without a ticket that they wish to have. In the past, scalpers would facilitate transactions among these consumers, for a fee. Sellers historically disliked those practices and actively worked to prevent them. In fact, we obtain a stark finding: an unfettered and efficient reselling market eliminates all of the benefits of advance selling, which justifies sellers’ historic hostility to reselling. But now ticket exchanges are common, growing, and even embraced by the sellers. What changed? We present a theory that demonstrates reselling is actually beneficial for sellers under one crucial condition - the seller must have some control over the reselling process, thereby allowing the seller to earn something from each transaction through licensing fees to third-party sellers. The old-fashioned paper ticket did not give such control, but technology now enables electronic tickets, which do. In fact, a seller cannot earn more than what it receives from a properly designed reselling market (i.e., reselling is optimal for the seller), especially for popular events with limited capacity. Furthermore, speculators do not disrupt the market: i.e., the seller has no need for scalpers nor should fear them. In sum, our results explain why the seller’s view towards reselling has shifted dramatically.

Keywords: Reselling, Advance Selling, Mechanism Design