Ticket Pricing for Performance Goods and Scalping in the Secondary Market

Abstract

This paper studies the case of the market for performance tickets where promoters sell tickets to consumers at a fixed level of supply with monopoly power over prices. Due to deliberate under-pricing of tickets below the market-clearing price by promoters, which creates excess demand, and the fact that different consumers learn different things about their demand over time, a profit opportunity emerges in a secondary market for brokers to resell tickets to consumers entering the market late. Brokers clear the market at or near equilibrium prices that were purposefully undercut by promoters. Promoters promote restrictive measures on resale, in the name of fairness, to try and eliminate brokers so they can capture the late profits they are currently unable to receive.