Research & Commentary: Michigan’s Scalping Law
Michigan state Rep. Tim Kelly recently introduced a bill that would allow buyers and sellers of event tickets to negotiate in a free market. Since 1931, it has been illegal in Michigan to sell any ticket above its face value without the express consent of the event and venue operators. Over the past decade many states have begun deregulating the secondary ticket market and repealing these so-called “scalping” laws. Michigan is one of only 15 states that still ban such sales.
Experts estimate the secondary ticket market is a $5 billion industry and growing. Opponents of repealing restrictions on this profitable and competitive industry argue the bans on “scalping” protect tickets buyers by keeping prices low for consumers. However, Alex Cartwright of the Advance Arkansas Institute explains, “An anti-scalping law does not protect consumers: instead, it encourages underground-market activity and restricts the public’s ability to attend the events they want. Outlawing secondary markets for ticket sales makes consumers worse off, costs the state foregone tax revenue, and creates the unlovely consequence of arenas with unsold tickets and empty seats.”
The lifting of regulations on the secondary market has made it extremely competitive, which has helped move the majority of sales from outside event venues to secure and transparent online marketplaces. The rise of online marketplaces such as Stubhub, TicketLiquidator, and others has effectively made anti-scalping laws unnecessary. David E. Harrington, a professor of economics at Kenyon College, explained in Regulation magazine: “The wave of deregulation of the ticket resale markets over the last 20 years has brought ticket scalping out of the shadows and onto the Internet, increasing the transparency of the market.”
The current restrictions on ticket resale in Michigan are bad for both buyers and sellers. Repealing this regulation would be a common-sense solution that helps fill seats and brings buyers and sellers out of the black market and onto trusted, transparent, and competitive online marketplaces.
The following documents examine scalping laws from multiple perspectives.
The Economics of Ticket Scalping
Jimmy Atkinson, an Internet entrepreneur and investor who writes frequently about online scalping, points out, “ticket scalping exists as a necessary mechanism that allows the market to clear. Without ticket scalping, demand would continue to exceed supply, thus creating an inefficient market.”
Uncapping Ticket Markets
Writing in Regulation magazine, Kenyon College economics professor David E. Harrington explains, “Many opponents of repealing price ceilings on secondary ticket markets predicted that prices would ‘skyrocket’ if the ceilings were repealed. This article tests their prediction using three seasons of data on the sale of tickets to National Hockey League games that were traded on the Stubhub website. The evidence is clear: resale prices to NHL hockey games did not skyrocket in states that repealed price ceilings compared to states that did not change their pricing laws.”
Rockonomics: The Economics of Popular Music
The authors write, “This paper considers economic issues and trends in the rock and roll industry, broadly defined. The analysis focuses on concert revenues, the main source of performers’ income. Issues considered include: price measurement; concert price acceleration in the 1990s; the increased concentration of revenue among performers; reasons for the secondary ticket market; methods for ranking performers; copyright protection; and technological change.”
The Welfare Effects of Ticket Resale
This National Bureau of Economic Research working paper written by Stanford University professors Philip Leslie and Alan Sorensen found, “Resale leads to a more efficient allocation of tickets, but does so at a cost. By enabling profitable resale transactions, it motivates individuals to engage in costly rent-seeking behavior in the primary market.”
Lesson from a Scalper
Kenyon College economics professor David E. Harrington notes in Regulation magazine, “The wave of deregulation of the ticket resale markets over the last 20 years has brought ticket scalping out of the shadows and onto the Internet, increasing the transparency of the market.”
Why Arkansas’s Anti-Scalping Laws Should Be Repealed
Alex Cartwright of the Advance Arkansas Institute explains, “An anti-scalping law does not protect consumers: instead, it encourages underground-market activity and restricts the public’s ability to attend the events they want. Outlawing secondary markets for ticket sales makes consumers worse off, costs the state foregone tax revenue, and creates the unlovely consequence of arenas with unsold tickets and empty seats.”
R Street Welcomes Bill to Overturn Michigan Anti-scalping Law
The R Street Institute praised a bill that would overturn the state’s anti-scalping law. In its press release, R Street Midwest Director Alan Smith said, “We should not be wasting precious law enforcement resources preventing Michigan consumers from engaging in an open ticket market governed by the laws of supply and demand.”
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartlander’s Budget and Tax News Web site at http://news.heartland.org/fisca, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.