Thursday, March 16, 2017

Scalping the Scalpers

Scalping the Scalpers

Ticket scalping – buying tickets to sought-after events and re-selling them for a profit – is nothing new. It’s happened for as long as tickets have been sold.

Today scalpers use networks and software to profit on an unprecedented scale from online ticket sales, raising the ire of event-goers and organisers alike. It’s a big deal, just take a look at the media it generates.

Yet modern networks and software also give event organisers the means stop online scalping, as this article explains.

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Scalpers are abhorred for their ability to use sophisticated computers, software and networks to purchase all available tickets to sought-after events minutes after they go on sale. These tickets quickly find their way onto ticket re-sale sites, often at multiples of the original ticket price.
Event organisers, who make tickets available at what they consider a reasonable price – reasonable for them seeking a return on an event, and reasonable for event-goers seeking to be entertained – seem at a loss for an effective means to deal with online scalping.

In response, here is a simple market-based mechanism for online ticket sales, a derivative of a ‘Dutch auction’, which effectively rules out online scalping:


The Solution

The solution rests on a single self-evident premise: that the prices event-goers are paying scalpers for tickets are the prices event-goers are prepared to pay for those tickets.


Start selling tickets at a high price, then lower the price of tickets until they are all sold. Because the price of tickets is always going down, re-sellers make a loss.


1.       Before selling any tickets to a sought-after event, set a ‘reserve ticket price’.
2.       When first releasing tickets for sale, set the ‘on sale ticket price’ well above the price any event-goer will pay.
3.       Lower ticket price incrementally over time until tickets begin to sell.
4.       Once tickets are selling, hold the ticket price at that level.
5.       After an interval during which no tickets are sold, again lower ticket price incrementally until tickets again begin to sell.
6.       Repeat steps 4 and 5 either until tickets are all sold or until ticket price reaches the ‘reserve ticket price’ set earlier. (A yardstick for the ‘reserve ticket price’ is the price the organiser would set using a conventional sales mechanism.)
7.       In the case where tickets remain on sale once the ‘reserve ticket price’ is reached, continue to sell tickets in a conventional sales manner.

The outstanding consequence of this approach is that event organisers take all proceeds from ticket sales. Scalpers can no longer profit from arbitrage between the sale and re-sale price of the tickets, since as time passes the re-sale price will move lower, in line with the sale price.

An economist will tell you that using this solution, all else being equal, event-goers will pay the same amount for tickets as they do when the scalpers intervene. In practice some variability will intrude, but not so as to inhibit an end to scalping.

Practically speaking

Online ticket sellers can invite ticket-seekers to place a bid for tickets in advance of sales going live. Tickets are then automatically allocated to them when the ticket price falls to that of their bid. This ensures ticket-seekers get tickets only at the price they value them.

Sensibly, ticket-sellers will use data from previous events to predict the likelihood of a bid succeeding. Sensible for two reasons: because doing so will help the market to approach an equilibrium (ie. fewer way high or way low bids causing disappointment), and because if they don’t do it, someone else will.
One criticism of this market-based response to scalping is that only the wealthiest fans can be sure of getting tickets. Note that this is already the situation under current conditions, when it’s the scalpers who make off with the loot instead of the organisers.

However, if organisers control the value of the tickets, they can allocate that value as they see fit.

For example, an organiser could determine in advance just how much money it wanted or needed to recoup from ticket sales for an event. Once ticket sales reach that amount, it could halt sales and instead raffle off the rest of the tickets for free, amongst those who bid at least a minimum amount for tickets – based perhaps on the ‘reserve ticket price’.

Of course raffling tickets this way invites rorting. It’s not a method that could be advertised in advance (if at all), nor one that could be used regularly, else events might be overwhelmed with lowball bids from those hoping to score a golden ticket. However, it is a method organisers could use to assuage guilt about inequitable ticket allocation.

Alternatively, organisers could keep the premium from ticket sales and use it to subsidise other less sought-after but nevertheless worthy events.

Another criticism is that some people will pay over-the-top for their tickets. However, here again, with the ticket proceeds in their pockets, organisers have the power. Those ticket-seekers who pay the most will get the best seats, that is obvious. In addition, organisers can arrange special opportunities or rewards for the few highest bidders – the chance to meet star performers, or a selection of prized one-off merchandise, and so on.

Once the mechanism is implemented, benefits and opportunities will quickly accrue.

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Online ticket scalping causes considerable angst to event organisers and fans both. The solution given here returns control over the capital generated by an event to those who generate the event. It’s a simple solution that can be implemented at low cost with existing technology and infrastructure.

And will earn kudos for whichever event organiser takes the initiative.



1 comment:

  1. Nice proposal. Another way for the organizer to return the "consumer surplus" (i.e., the amount collected which exceeds venue capacity times reasonable ticket price)would be to give every person who attends the function a refund. This refund could be uniform (equal to "consumer surplus" divided by tickets sold) or proportional to the price paid.