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>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

by 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.
- ikeboy 7y ago
  >Which, as I said before, is only some of the time, but even under that assumption... The only scenario where it's not is if the demand curve is perfectly inelastic. If the price is set at $100, and selling it for $400 instead doesn't raise the average willingness to pay of buyers, then there has to be exactly the same demand at $100 as at $400, which is extremely unlikely. >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. We're talking about a hypothetical scenario without scalpers. In that scenario, it's difficult to impossible to resell tickets. >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: Yes, positing an income effect from winning the ticket lottery can produce a model where this result no longer holds. But income effects that strong are insanely rare. To reframe this, you're suggesting if they had found $400 on the street that morning, the rational thing to do given their preferences is to spend $400 on a ticket, but they shouldn't otherwise. You're depicting someone so poor that an additional $400 represents a significant wealth difference, but also where it makes sense to spend $400 on a ticket rather than on other things. In the real world, I think we'd call someone like that irrational. It might be plausible in other contexts, but it doesn't seem reasonable in the ticket context.

by ikeboy 7y ago

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.

ikeboy 7y ago
>Which, as I said before, is only some of the time, but even under that assumption... The only scenario where it's not is if the demand curve is perfectly inelastic. If the price is set at $100, and selling it for $400 instead doesn't raise the average willingness to pay of buyers, then there has to be exactly the same demand at $100 as at $400, which is extremely unlikely. >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. We're talking about a hypothetical scenario without scalpers. In that scenario, it's difficult to impossible to resell tickets. >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: Yes, positing an income effect from winning the ticket lottery can produce a model where this result no longer holds. But income effects that strong are insanely rare. To reframe this, you're suggesting if they had found $400 on the street that morning, the rational thing to do given their preferences is to spend $400 on a ticket, but they shouldn't otherwise. You're depicting someone so poor that an additional $400 represents a significant wealth difference, but also where it makes sense to spend $400 on a ticket rather than on other things. In the real world, I think we'd call someone like that irrational. It might be plausible in other contexts, but it doesn't seem reasonable in the ticket context.