Friday, August 10, 2012

Coin Scalping: Dime Sells for 16M Times Face Value

The 1873 dime pictured above just sold for $1.6 million at auction, with strong interest and bidding from four or five serious buyers.  Here are the details.

A Michigan lawmaker plans to introduce legislation that would limit the price of tickets for concerts and sporting events to no more than 10 percent above their face value when sold on the secondary market.  State representative Douglas Geiss was upset when he found some $100 Detroit Tigers tickets selling on StubHub for $1,000, and said he found that “usurious.” (I'm 100% certain that Mr. Geiss would gladly sell shares of stock he might own for ten times the price he paid for it, and he would not find that price "usurious".)

Q: What would the politician think about coins sold on the secondary market for prices far above face value like the one above that just sold for 16 million times its face value of 10 cents (and $15,999.999.90 above face value)?  Wouldn't that be a case of usurious "coil scalping"?  

Q: Is there any legal or economic difference between scarce coins and scarce concert tickets that makes "ticket scalping" different from "coin scalping," to the point that one is often illegal (or regulated) and the other is completely legal and unregulated?  

I don't think there is any logical, legal, or economic case that can be made to treat tickets and coins differently, and the prices for both should be determined by market forces, and not limited by some arbitrary "face value." But if anybody (a musician or concert promoter maybe?) wants to make that case that scarce tickets are somehow different than scarce coins, and they should therefore be subject to different legal price restrictions, please do so. And then you'll have to also explain why you think it's acceptable for houses, cars, and bonds to sometimes sell (or "be scalped") above their face values/list prices, but not concert tickets. 

50 Comments:

At 8/10/2012 6:42 PM, Blogger PeakTrader said...

What if you're the second person in line waiting to buy two tickets for the Olympics at $100 each and the person in front of you, George Soros, buys all the tickets.

Then George says I'll sell you the tickets for $200 each and you're willing to pay up to $200 for a ticket?

And what about someone else in line willing to pay $100, but not more than $150?

 
At 8/10/2012 6:47 PM, Blogger PeakTrader said...

Obviously, there will be some winners and losers.

 
At 8/10/2012 7:07 PM, Blogger givemefreedom said...

Well if you want to play the what if game, what if the organizers of the Olympics were to take all the tickets and offer them on an auction basis over the internet, where the highest bid gets the ticket?

Then the clear winner would be the olympics and a true market price for the tickets would be set.

In this case, your what if scenario would mean that Soros would have paid on average alot higher than the $100 each and the best he likely could do with his hoard of tickets was to sell them at cost.

Bottomline, let demand set the price. If event organizers underprice their tickets or undersupply them, then the market price (scalpers prices) will be higher. If they do the opposite then market prices will be lower and tickets will go unsold.

Scalpers provide that market mechanism that allows people who are willing to pay the market price to get tickets. Dr. Perry showed with his London Olympics posts that if you remove that market mechanism (scalpers) them markets do not clear and buyers are not matched up with sellers.

 
At 8/10/2012 7:19 PM, Blogger PeakTrader said...

Givemefreedom, if scalpers make a net profit (which is likely or they wouldn't be scalping), then there are still winners and losers.

Also, I stated before:

The net gain of scalpers equals the net loss of consumers.

 
At 8/10/2012 7:37 PM, Blogger givemefreedom said...

PeakTrader said...
The net gain of scalpers equals the net loss of consumers.



I assume you mean that the scalpers gain is the difference between what they pay for the tickets (and many times they are buying tickets from the original ticket buyers, a consumer using your definition), and what they sell the ticket to the ultimate event goer (the final consumer if you will).

In your analysis all you consider is the final consumer. Of course, if the final consumer had access to the ticket directly from the event organizer, then that final consumer would have saved money. The scalper would have not had an opportunity to gain on the sale.

In the CD posts about the empty seats at the London Olympics, it was clear that removing the scalpers left hundreds of thousands of tickets unused. In this case there was no net gain, just a net loss. The full cost of the ticket was lost, because the seat was empty. That is what a market maker does, clears a market by matching sellers with buyers.

Remove the market maker and then the market usually fails. What is a Retailer but just a market maker? Someone who matches up sellers (producers) with buyer (consumers). The fact that the retailer buys at a lower price and sells at a higher price is not an issue.

 
At 8/10/2012 7:46 PM, Blogger PeakTrader said...

Givemefreedom, so, are you now saying it's OK for George Soros to buy all the Olympic tickets?

 
At 8/10/2012 7:51 PM, Blogger Mark J. Perry said...

There's an easy solution to the George Soros example: Limit ticket purchases to 4 per person.

 
At 8/10/2012 7:57 PM, Blogger givemefreedom said...

That was your "what if", not mine.

I am saying that market makers are extremely important if you want properly functioning markets. They exist in many forms, retailers, distributors, stock exchange market makers, and also scalpers (which you could just as easily call Ticket market makers).

Without market makers then the market in that item will not function properly in most instances were it is not easy for sellers to exchange with buyers. In this case this is a net loss to the economy since potential trades do not occur.

To blame scalpers (ticket market makers) for selling tickets at higher than face value means you should blame all market makers for doing the same thing. It is not the scalper's fault that the market price is higher than face value.

 
At 8/10/2012 7:58 PM, Blogger Mark J. Perry said...

There is no net loss for the buyer. He or she values the ticket more than the price, otherwise he/she wouldn't buy it. Even if the ticket is 10x an arbitrary face value, the buyer might value the ticket at 20x face value, and consider 10X face value a "bargain."

The way you describe it, a buyer would have a net loss for every single transaction.

Voluntary transactions are win-win, not win-lose. Econ 101.

 
At 8/10/2012 8:02 PM, Blogger givemefreedom said...

Absolutely Dr. Perry.

I think that Peak is saying that in his "what if" scenario, the someone else who was not willing to pay more than $150 when Soros was selling for $200 is a net loser because he does not get a ticket.

 
At 8/10/2012 8:09 PM, Blogger Mark J. Perry said...

The George Soros example wouldn't be any different from one where I'm in a long line to buy tickets, and the person in front of me buys the last available tickets and none are available for me. Then the guy in front of me makes the same offer.

We know from basic ECON 101 that there are no losers from voluntary exchange, it's a win-win outcome.

 
At 8/10/2012 8:15 PM, Blogger PeakTrader said...

"We know from basic ECON 101 that there are no losers from voluntary exchange."

So, you're a winner when you pay a higher price than you otherwise would, i.e. receive less consumer surplus?

 
At 8/10/2012 8:22 PM, Blogger Mark J. Perry said...

Yes, I still value the ticket more than the price, otherwise I won't buy it.

Just like if I'm in a competitive bidding war for a house, and I end up paying 10% above list price to buy the house. I won't buy it unless I value the house more than what I paid, and I am still a net gainer from the transaction. Sure, I'd always prefer to pay zero, or the lowest price possible, but I'm still a net gainer if I make the buy at any positive price.

Just like when a seller sells a ticket below face value, he/she still values the cash more than the ticket, otherwise they won't sell it, and have a net gain.

Remember: Voluntary transactions are always positive sum, win-win outcomes, and not zero sum outcomes, i.e. win-lose. A buyer who would be a net loser won't engage in the voluntary transaction.

 
At 8/10/2012 8:29 PM, Blogger PeakTrader said...

However, the battle between the scalper and the consumer is over consumer surplus.

When one gains, the other loses.

 
At 8/10/2012 8:32 PM, Blogger Mark J. Perry said...

Peak: What's your position? You favor legislation against selling tickets for more than face value? What about tickets below face value? What about selling coins above face value? Houses above list prices? Cars above sticker price? Bonds above face value?

My original challenge was for somebody to make the case that tickets to an Eric Church concert are somehow a different commodity than coins, houses, bonds and cars.

That is, can somebody make the case for making ticket scalping illegal, but at the same time argue for allowing coins, houses, bonds and cars to be sold above face value/sticker price?

 
At 8/10/2012 8:38 PM, Blogger Mark J. Perry said...

But that's the case in every one of the millions of transactions that happen daily, that's not unique to tickets to a Detroit Tigers game.

In that sense, you're not saying anything important or of value, you're just describing every voluntary transaction that takes place.

Every car, house, antique, piano, etc. that is sold is a battle over consumer surplus. That's obvious and not important to the questions I have posed, and my challenge.

 
At 8/10/2012 8:39 PM, Blogger PeakTrader said...

Dr Perry, I don't have a position on this topic, because I don't fully understand why some allow scalping and others don't.

 
At 8/10/2012 8:46 PM, Blogger Che is dead said...

"There is no net loss for the buyer. He or she values the ticket more than the price, otherwise he/she wouldn't buy it. Even if the ticket is 10x an arbitrary face value, the buyer might value the ticket at 20x face value, and consider 10X face value a "bargain." -- Dr. Perry

End of argument. If you don't get it you never will.

 
At 8/10/2012 9:22 PM, Blogger arbitrage789 said...

For those who think that more "regulation" will be helpful, bear in mind that money will have to be spent on enforcement, and on prosecution of scalpers.

And to the extent that there's enforcement of laws against scalping, the price of scalped tickets will be driven up... not a good thing if you want to buy a ticket from a scalper.

 
At 8/10/2012 9:30 PM, Blogger Ron H. said...

Peak:

"Givemefreedom, so, are you now saying it's OK for George Soros to buy all the Olympic tickets?"

I don't know about GMF but I'm saying that it's OK.

"So, you're a winner when you pay a higher price than you otherwise would, i.e. receive less consumer surplus?"

But I don't pay a higher price than I otherwise would. I may pay a higher price than I anticipated, and every price above 0 is higher than I would like, but there is a top price I will pay for something, and at that point, I still value the something more than the price I pay or there won't be a sale.

If you back away from that chart and quit saying "consumer surplus" you will find it easy to understand.

You talk easily about the concept of a "reservation wage", but seem to have a problem with a "reservation price"

 
At 8/10/2012 9:40 PM, Blogger Ron H. said...

"Dr Perry, I don't have a position on this topic, because I don't fully understand why some allow scalping and others don't."

Those who allow scalping understand economics and those who don't, don't.

 
At 8/10/2012 9:56 PM, Blogger Hydra said...

I do not think this is a reasonable analogy.. Bad arguments such as this hurt what is otherwise a reasonable position.

 
At 8/10/2012 10:03 PM, Blogger Mark J. Perry said...

I'm suggesting that tickets and coins are both commodity/goods, whose prices are determined by markets forces, i.e. the law of demand and supply.

If you think that tickets are a "special case," and that the laws of supply and demand apply differently to tickets than to coins, houses, cars and bonds, then the burden is on you to demonstrate how/why tickets are different from other commodities/goods.

That is, if you think it's OK to sell houses, coins, cars and bonds above face value/list price, but NOT tickets, then let's hear your economic "logic." Break it down for us.

 
At 8/10/2012 10:09 PM, Blogger Hydra said...

The person who buys the coin has a reasonable expectation of reselling it to a higher bidder, eventually.

Once a concert ticket is used the value is either lost or fixed. Why should one person pay twice as much as another, for the same experience?

It seems there. Is an essential dishonesty here. Tickets are differed fir enjoyment of the concert, and most buyers accept those terms.

A few people violate those implicit terms and create a secondary or derivative market.

We have srrn what the problem with derivative markets is. The difference being that bankers get bailed it and scalp ers do not.

What is wrong with the owner of the property( entertainment) controlling the conditions under which it may be sold?

If someone bought a ticket, made a video of the show, and then resold it, would that new OK?

Of course not. It would be a violation of intellectual property. Scalping is very little different.

 
At 8/10/2012 10:12 PM, Blogger Hydra said...

A primary difference is that if someone buys property above face value, they might get part or all of the overage back.

 
At 8/10/2012 10:16 PM, Blogger Mark J. Perry said...

So does that mean you support strict laws that prohibit any ticket re-sales above face value? Even if it's a voluntary transaction between a willing buyer and willing seller?

What about ticket re-sales below face value? Why should that be OK if ticket re-sales above face value are illegal.

Q: Why should some people on an airplane be paying twice as much as others for the same experience?

 
At 8/10/2012 11:32 PM, Blogger sethstorm said...

Dimes don't disappear over time - tickets do. Neither do stocks in normal scenarios.

Geiss is only incorrect at holding the line of the usurious tickets at 10% - where the line is to be face value.

To do anything else would be against the intent of a wide audience for the games.

 
At 8/10/2012 11:38 PM, Blogger Mark J. Perry said...

I have to say I'm disappointed with the level of economic illiteracy in some of the comments on this post.

Solution: Read Carpe Diem daily.

 
At 8/10/2012 11:45 PM, Blogger sethstorm said...


So does that mean you support strict laws that prohibit any ticket re-sales above face value? Even if it's a voluntary transaction between a willing buyer and willing seller?

Yes and it's not strictly a "willing buyer" meeting a willing seller, given availability-driven duress.

 
At 8/10/2012 11:52 PM, Blogger Mark J. Perry said...

Remember that you can only have a secondary market for tickets above face value under two conditions:

1) The face value is below true market value.

And/or

2) Tickets are under-supplied relative to fan demand.

Venues, artists, promoters can easily eliminate ticket re-sales above face value by either:

1) Raising ticket prices

and/or

2) Increasing the number of tickets available by either adding shows or increasing the size of the venue.

As I have argued before, the reason we don't see ticket scalping for movies is because they don't under-supply the number of tickets available relative to fan demand. If blockbuster movies played in only one theater in each city on only one night, and tickets were sold in advance, there would be a huge secondary market for tickets.

 
At 8/11/2012 1:40 AM, Blogger Ron H. said...

"The person who buys the coin has a reasonable expectation of reselling it to a higher bidder, eventually."

The greater fool? Why would you believe that? They may wish to sell higher, but why would you say such an expectation is reasonable?

"Once a concert ticket is used the value is either lost or fixed."

The ticket is a license granting certain rights to the holder to attend an event. Once the concert is experienced, the value has been realized. The license no longer has value.

"Why should one person pay twice as much as another, for the same experience?"

Changes in supply or demand?

"It seems there. Is an essential dishonesty here. Tickets are differed fir enjoyment of the concert, and most buyers accept those terms."

Nonsense. Surely even you realize that different people value a performance differently. You might be willing to pay $500 to see a Justin Bieber concert, while I might agree to attend if you PAID me $500.

"A few people violate those implicit terms and create a secondary or derivative market."

There are no implicit terms. every term is spelled out explicitly. Do you think concert promoters always price a concert correctly to satisfy demand?

"We have srrn what the problem with derivative markets is. The difference being that bankers get bailed it and scalp ers do not."

There are no problems with either derivatives or scalpers. The problem IS the bailout or the arrest of the scalper.

"What is wrong with the owner of the property( entertainment) controlling the conditions under which it may be sold?"

Nothing - they are granting a specific license, and can require you to stand on your head during the performance, or wear a purple dress or any other condition they wish to impose, but why would they care if tickets are resold once they have been paid the agreed price for them?

tickets reselling at a higher price means the promoter has underestimated demand for the concert.

Do you think people who buy hay from you should be forced to resell it at the same price?

You really do need to explain why tickets to an event, or any other good or commodity shouldn't be resold at whatever price a willing seller and buyer agree on.

"If someone bought a ticket, made a video of the show, and then resold it, would that new OK?

Of course not. It would be a violation of intellectual property. Scalping is very little different.
"

What are you talking about? Get a grip. How is reselling a ticket a theft of intellectual property? It is good for one performance only. Only one person gets in with one ticket. What difference does it make who that person is, or how much they paid for the performance?

The promoters are paid the asking price when the ticket is originally sold. They are unaffected by anything that happens after that.

This is simple supply and demand stuff. Learn some economics.

 
At 8/11/2012 2:06 AM, Blogger Ron H. said...

"If someone bought a ticket, made a video of the show, and then resold it, would that new OK?"

This is a matter of property rights - a concept I know you have trouble understanding.

Private parties produce entertainment that is presented on private property, and they license certain rights to enter that property and attend a performance through ticket sales. If that doesn't include a right to record the performance, then you can't do so. It's that simple.

 
At 8/11/2012 4:20 AM, Blogger Larry G said...

not sure what the brouhaha is all about.

EBAY uses the auction format to sell just about anything (with some restrictions).

Not sure about tickets but I've seen tickets on Craig's list.

I think Mr. Perry's position is dead on correct.

but I'm not sure people would embrace it for every single kind of transaction ... say for gasoline or bread or milk but it sure works for congestion pricing and cattle sales, etc...

you can probably name hundreds of things sold at auction every day so why not tickets?

 
At 8/11/2012 4:27 AM, Blogger Larry G said...

Ebay does have prohibitions and restrictions on things they will not allow to be sold:

http://pages.ebay.com/help/policies/items-ov.html#prohibited

interestingly, tickets are restriction,not prohibited:

However, when you list a ticket on eBay, you're responsible for making sure that selling your item doesn't violate any applicable laws. Make sure that you follow the specific guidelines for ticket resale prices in your area.

http://pages.ebay.com/help/policies/event-tickets.html

so they apparently WILL allow the auction but you are responsible for whether or not it violates laws in the area where the transaction takes place.

and indeed they have quite a few event ticket auctions ongoing:

http://www.ebay.com/sch/i.html?_trksid=p5197.m570.l1313&_nkw=event+tickets&_sacat=0

 
At 8/11/2012 4:44 AM, Blogger randian said...

Why should one person pay twice as much as another, for the same experience?
What does "should" have to do with anything? Your error is demanding your values be made universal. Other people may value that experience more highly than you.

 
At 8/11/2012 4:49 AM, Blogger Larry G said...

people may value that experience more highly than you.

so just curious.

Does this mean in a disaster area that auctions for backup generators and food would also be acceptable?

how far does the "voluntary transaction" really go?

 
At 8/11/2012 8:55 AM, Blogger Don Culo said...

"There's an easy solution to the George Soros example: Limit ticket purchases to 4 per person."

********* News Flash ***********

There is already limits on the quantity of ticket which can be sold to one person/entity. But the big ticket agencies still buy hundreds of tickets at face value and scalp them at a higher price.

 
At 8/11/2012 9:00 AM, Blogger Mark J. Perry said...

That's a different issue than making ticket sales above face value illegal.

If the musicians, promoters and venues want to stop ticket scalping, they need to increase the number of tickets available, or raise the price. A market for tickets above face value can only exist when: a) the artist/promoter is under-supplying tickets relative to fan demand, and/or b) the artist/promoter is under-pricing tickets relative to true market value.

Raise ticket prices and/or increase the number of tickets, and ticket scalping would be eliminated.

 
At 8/11/2012 9:10 AM, Blogger givemefreedom said...

Seems to me that by restricting the reselling of a ticket that they sold to me that allows any one person to enter the event they are violating my rights to do what I want with my property.

If their intent was to sell the ticket to me so that only I could enter the event then they should have tickets registered by name so that this ticket is only valid for givemefreedom to enter the event.

Then I would have no problem with banning scalping because I know only I can use the ticket.

 
At 8/11/2012 9:15 AM, Blogger givemefreedom said...

Larry G said...
so just curious.
Does this mean in a disaster area that auctions for backup generators and food would also be acceptable?
how far does the "voluntary transaction" really go?


Yes that is exactly what they should do and they should publicize the auctions as much as possible so that the price signal is seen by as many potential suppliers of backup generators and food who have the ability to rush in extra generators and food.

This would ensure that more supply of these items reach the affected area than if you just ration the items and hence not encourage suppliers to risk shipping in supplies to a difficult area in which to do business.

 
At 8/11/2012 12:40 PM, Blogger Ron H. said...

"but I'm not sure people would embrace it for every single kind of transaction ... say for gasoline or bread or milk but it sure works for congestion pricing and cattle sales, etc..."

If it works well for everything else, why wouldn't it work well for gasoline or bread or milk? A higher demand for those items, would induce a greater supply, just as with everything else.

 
At 8/11/2012 1:16 PM, Blogger Ron H. said...

givemefreedom

"Seems to me that by restricting the reselling of a ticket that they sold to me that allows any one person to enter the event they are violating my rights to do what I want with my property."

When you buy a ticket you are buying a license to attend an event or performance. The issuers of that license can place whatever restrictions and conditions they wish on that license, including forbidding transfer and resale, or requiring you to wear a purple dress to get in the door.

Your property, the physical ticket, has no real value, and you could sell it, but it may not grant admission to someone else if the issuers forbid it.

The real mystery is why anyone would care what happens after the ticket is originally sold, as the seller has received their asking price, and it wouldn't seem to matter who actually attended or what they paid beyond the original price.

It seems to me that people who object to ticket resales don't understand the laws of supply and demand.

Another great example of the negative consequences of outlawing scalping is the story of that infamous generator scalper John Shepperson. In that case, people without electricity were prevented from getting it.

 
At 8/11/2012 3:22 PM, Blogger randian said...

Does this mean in a disaster area that auctions for backup generators and food would also be acceptable?

Yes

 
At 8/12/2012 10:58 AM, Blogger Pulverized Concepts said...

I bought a $52 front row ticket to the Twins-Rays game on the street last night for $20. The fellow that sold it to me wanted more money for it but realized that there was a good chance that he wouldn't be able to sell it at all so he made the deal. Ticket scalpers are the epitome of capitalism and should be regarded as heroes rather than slugs. If they weren't fulfilling a need they wouldn't exist.

Incidentally, it wasn't a very good game. Should I get my money back? Is there a standard to which athletic events should be held relative to the price of admission?

 
At 8/12/2012 1:32 PM, Blogger Ron H. said...

Pulverized Concepts:

"Incidentally, it wasn't a very good game. Should I get my money back? Is there a standard to which athletic events should be held relative to the price of admission?"

I don't know about getting your money back, but there was apparently already a standard of sorts in the form of low expectations and little enthusiasm for the game, as evidenced by a $52 ticket being available for $20.

 
At 8/12/2012 4:16 PM, Blogger Pulverized Concepts said...

The game was virtually a sell-out.

 
At 8/12/2012 4:49 PM, Blogger Ron H. said...

"The game was virtually a sell-out."

In that case, it might be a good idea to check the fine print on your ticket stub to see if satisfaction was, in fact, guaranteed. If it was, someone owes you a refund. :)

 
At 8/12/2012 9:40 PM, Blogger Ron H. said...

FREE! Ticket for one front row seat included with each purchase of a T-shirt.

T-shirts: $300

 
At 8/13/2012 9:50 AM, Blogger morganovich said...

it's really simple.

scalpers will just need to accept only old coins at face value to buy tickets.

granted, you'd need to buy a whole section to us that dime, but...

 
At 8/13/2012 1:05 PM, Blogger Ron H. said...

"it's really simple.

scalpers will just need to accept only old coins at face value to buy tickets.

granted, you'd need to buy a whole section to us that dime, but...
"

Yeah, but what could be better than taking 20,000 of my closest friends to a ballgame?

 

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