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Increasing price only reduces consumer surplus when it's the same consumers who buy. This is not the case when there's a shortage of tickets at the original sal

by ikeboy 7y ago

Increasing price only reduces consumer surplus when it's the same consumers who buy. This is not the case when there's a shortage of tickets at the original sale price, which is the only scenario where scalping is profitable. Scalping unambiguously increases Kaldor-Hicks efficiency under a simple model. You can argue that efficiency isn't the best way to be fair, and it's fairer to someone to not have a ticket due to random luck rather than being priced out, perhaps. But scalping increases efficiency, which is all I claimed.

comex 7y ago
> Increasing price only reduces consumer surplus when it's the same consumers who buy. This is not the case when there's a shortage of tickets at the original sale price, which is the only scenario where scalping is profitable. I don’t see how that follows. If a consumer can’t buy a ticket from the original seller due to a shortage, there’s no guarantee that the original sale price was at (or even near) the maximum price that that particular consumer was willing to pay. Therefore, that consumer might also be willing to buy from a scalper. It would be in the opposite case, if there wasn’t a shortage, that someone who doesn’t buy could be assumed to be unwilling to pay the price. In practice, I’d expect a decent fraction of those consumers to be near their maximum price, since if not, we could conclude that the original seller irrationally set their price far too low. (But the original price must have been set somewhat too low if a significant shortage exists.) Still, depending on the markup charged by the scalper, I wouldn’t be surprised if a significant fraction of consumers actually would be willing to pay it. As a practical example, according to an article from last year about Hamilton tickets [1], among seats originally sold for $69-$179, a few were on sale for >$10,000 each, but the average resale price was $412. $10,000 will obviously price out most consumers, but going from ~$100 to ~$400 might not, considering the extremely high desirability of Hamilton seats. > Scalping unambiguously increases Kaldor-Hicks efficiency under a simple model. You can argue that efficiency isn't the best way to be fair, and it's fairer to someone to not have a ticket due to random luck rather than being priced out, perhaps. But scalping increases efficiency, which is all I claimed. If I understand correctly, it increases efficiency if the scalper could have hypothetically purchased their ticket from someone who was deprived the opportunity to buy from the original seller, instead of from the original seller directly, and still made a profit by reselling it. But that doesn’t seem true. There’s no reason to think that person who “won the lottery” would be willing to sell the ticket for the same price they bought it for. Instead they would likely sell it for a similar price to what the scalper wants to charge. At best the scalper can gain some value on the margin by taking on the risk that the ticket won’t sell, but not much value. [1] https://www.seattletimes.com/entertainment/theater/how-did-hamilton-tickets-get-so-expensive-and-what-does-that-mean-for-future-big-events/ https://www.seattletimes.com/entertainment/theater/how-did-h...
- ikeboy 7y ago
  >But that doesn’t seem true. There’s no reason to think that person who “won the lottery” would be willing to sell the ticket for the same price they bought it for. Instead they would likely sell it for a similar price to what the scalper wants to charge. At best the scalper can gain some value on the margin by taking on the risk that the ticket won’t sell, but not much value. As long as the ticket moves to someone with a higher willingness-to-pay, Kaldor-Hicks efficiency is increased. Since the ticket holder without scalpers isn't the same as the one with scalpers, they have a lower willingness-to-pay than the price the scalper sells at. Therefore, they'd be willing to sell to the actual ticket holder at that price. The only difference between this scenario and the one with a scalper is some money that the scalper has instead of the original ticket holder, and transfers don't factor into Kaldor-Hicks so this is irrelevant.
  - comex 7y ago
    > As long as the ticket moves to someone with a higher willingness-to-pay, Which, as I said before, is only some of the time, but even under that assumption... > Since the ticket holder without scalpers isn't the same as the one with scalpers, they have a lower willingness-to-pay than the price the scalper sells at. Therefore, they'd be willing to sell to the actual ticket holder at that price. Then why don't they? Anyone who buys a ticket intending to go to the play is free to change their mind and resell it. Modern online services make this quite easy. But most people don't resell their tickets. There are a variety of possible explanations. One is to invoke arguably irrational (but still real) behavior like loss aversion. Another has to do with the inconvenience of rescheduling or the risk of not selling, but that doesn't apply to the Kaldor-Hicks calculation since being deprived of a ticket (as opposed to selling it) doesn't create that inconvenience or risk. But here is one possible situation where even an economically rational actor would prefer to have a ticket than to be awarded a market price: The value of the ticket to them may be higher than the scalpers' market price. This can be true even if the holder was not originally willing to pay that much, because the holder effectively gained net worth as soon as they "won the lottery" for the ticket, so they have a different amount of spare money to work with. And if this person took the time to buy tickets as soon as they were available, they probably care more about the play than the average person in the secondary market, so they would put a higher value on it relative to their wealth. This is balanced by the fact that other people in the secondary market will likely be wealthier than them. Indeed, in the case of those rare orders-of-magnitude price hikes, most holders probably would be willing to sell if they could be sure the sale would actually go through. But most scalping margins are much more moderate and may not be enough to get the price over the value to the original holder.

by ikeboy 7y ago

comex 7y ago

> Increasing price only reduces consumer surplus when it's the same consumers who buy. This is not the case when there's a shortage of tickets at the original sale price, which is the only scenario where scalping is profitable. I don’t see how that follows. If a consumer can’t buy a ticket from the original seller due to a shortage, there’s no guarantee that the original sale price was at (or even near) the maximum price that that particular consumer was willing to pay. Therefore, that consumer might also be willing to buy from a scalper. It would be in the opposite case, if there wasn’t a shortage, that someone who doesn’t buy could be assumed to be unwilling to pay the price. In practice, I’d expect a decent fraction of those consumers to be near their maximum price, since if not, we could conclude that the original seller irrationally set their price far too low. (But the original price must have been set somewhat too low if a significant shortage exists.) Still, depending on the markup charged by the scalper, I wouldn’t be surprised if a significant fraction of consumers actually would be willing to pay it. As a practical example, according to an article from last year about Hamilton tickets [1], among seats originally sold for $69-$179, a few were on sale for >$10,000 each, but the average resale price was $412. $10,000 will obviously price out most consumers, but going from ~$100 to ~$400 might not, considering the extremely high desirability of Hamilton seats. > Scalping unambiguously increases Kaldor-Hicks efficiency under a simple model. You can argue that efficiency isn't the best way to be fair, and it's fairer to someone to not have a ticket due to random luck rather than being priced out, perhaps. But scalping increases efficiency, which is all I claimed. If I understand correctly, it increases efficiency if the scalper could have hypothetically purchased their ticket from someone who was deprived the opportunity to buy from the original seller, instead of from the original seller directly, and still made a profit by reselling it. But that doesn’t seem true. There’s no reason to think that person who “won the lottery” would be willing to sell the ticket for the same price they bought it for. Instead they would likely sell it for a similar price to what the scalper wants to charge. At best the scalper can gain some value on the margin by taking on the risk that the ticket won’t sell, but not much value. [1] https://www.seattletimes.com/entertainment/theater/how-did-hamilton-tickets-get-so-expensive-and-what-does-that-mean-for-future-big-events/ https://www.seattletimes.com/entertainment/theater/how-did-h...

ikeboy 7y ago
>But that doesn’t seem true. There’s no reason to think that person who “won the lottery” would be willing to sell the ticket for the same price they bought it for. Instead they would likely sell it for a similar price to what the scalper wants to charge. At best the scalper can gain some value on the margin by taking on the risk that the ticket won’t sell, but not much value. As long as the ticket moves to someone with a higher willingness-to-pay, Kaldor-Hicks efficiency is increased. Since the ticket holder without scalpers isn't the same as the one with scalpers, they have a lower willingness-to-pay than the price the scalper sells at. Therefore, they'd be willing to sell to the actual ticket holder at that price. The only difference between this scenario and the one with a scalper is some money that the scalper has instead of the original ticket holder, and transfers don't factor into Kaldor-Hicks so this is irrelevant.
- comex 7y ago
  > As long as the ticket moves to someone with a higher willingness-to-pay, Which, as I said before, is only some of the time, but even under that assumption... > Since the ticket holder without scalpers isn't the same as the one with scalpers, they have a lower willingness-to-pay than the price the scalper sells at. Therefore, they'd be willing to sell to the actual ticket holder at that price. Then why don't they? Anyone who buys a ticket intending to go to the play is free to change their mind and resell it. Modern online services make this quite easy. But most people don't resell their tickets. There are a variety of possible explanations. One is to invoke arguably irrational (but still real) behavior like loss aversion. Another has to do with the inconvenience of rescheduling or the risk of not selling, but that doesn't apply to the Kaldor-Hicks calculation since being deprived of a ticket (as opposed to selling it) doesn't create that inconvenience or risk. But here is one possible situation where even an economically rational actor would prefer to have a ticket than to be awarded a market price: The value of the ticket to them may be higher than the scalpers' market price. This can be true even if the holder was not originally willing to pay that much, because the holder effectively gained net worth as soon as they "won the lottery" for the ticket, so they have a different amount of spare money to work with. And if this person took the time to buy tickets as soon as they were available, they probably care more about the play than the average person in the secondary market, so they would put a higher value on it relative to their wealth. This is balanced by the fact that other people in the secondary market will likely be wealthier than them. Indeed, in the case of those rare orders-of-magnitude price hikes, most holders probably would be willing to sell if they could be sure the sale would actually go through. But most scalping margins are much more moderate and may not be enough to get the price over the value to the original holder.