THE Fou,y OF ANTI-SCALPING LAWS

Stephen K Happel and Marianne M. Jennings

Oneofthebasicprinciples In economics Is that competltltvemarketsgenerate price movements to bring quantities demanded into balancewith quantities supplied so that queues will be quickly eliminated.Lines, therefore, are troubling to economists, especially when thelines appear repeatedly in what seem to be nonregulated markets.

are price increases not more forthcoming?Natural disasters create one such situation. Essentials like water

aie sold at “below-market” prices Immediately after the disaster, asevidencedby long linesofconsumers. Acompletely free-market solu-tionwould be to have many different firms supplying water at pricesthe market will bear. However, perceptions offairness are so strongin natural disasters that —gouging Is either Illegal or heavIlycriti-cized by most consumers. Charging what the market will bear in theshort rungenerates extremelyadverse “moral effects” (Akerlof 1984)or “reputation efl~cts”(Klein and Leffler 1981) in the long rim.Because ofconsumerperceptions about fairness and moraltreatment,below-marketpricing continues—and queues remain for some time.

Another situation ofpersistent linesand strong feelingsabout equityIs entertainment events such as major concerts or big-time sportchampionships.Well-known performers and certaingames repeatedlyhave people lining up for tickets for the right to attend the live, one-time Interactions. Again, why do promoters not raise prices at thetime tickets first go on sale to prevent long lines?Arethe lines rationalin & market sense, helping to ration a scarce commodity? Further,why do many promoters and certain consumers become so outragedby the attempt to clear markets through ticket scalping? Currently

Cats Jounial VoL 15, No. 1 (SpdnglSummer 1996). CopyrIght C Cab Institute. MI— reemw~Stephen t Happel Is Professorof Economics and Marianne M. Jennings Is Professor

ofLegal and EthIcalStudS at MlwnaState University. Theauthors areIndebted to RogerFaith for his InsI&lb, Todd Coleman and James Busby 6w theIr research, and williamNldmnen fincomments at critical pcht In the paper.

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26 states, the DistrictofColumbia, and most sports-leaguemunicipali-ties In the United States have some fonn ofanti-scalping regulation,and three-quarters of the U.S. population resides In those locales.(See Table 1 for the states and cities Involved.)

This paper examInes the nature of major entertainment events,reviews theevolution ofscalpingstatutes since 1918, descrIbes variousschemes for allocating tickets, considers the winners and losers Ineach scheme, and suggests some Ideas about possible future scalpinglaws based on market principles.

The Nature of Entertainment EventsEntertainment events occur In specific locations at specific times.

Such events Include county fairs, open-airdances, and other situationsin which the notion ofcapacity Is relatively fluid. However, the focusin this paper Is on events that takeplace ina concert hail, amphitheater,or stadium wIth a fixed seathg capacity. Consequently, demand Is theprime detennlnant of price. For such events, promoters or teamowners must sell tickets in advance with a printed face value, muchlIke firms Issuing common stock with a par value or a contract beingsold In a futures market. Most critically, the events have a quality ofuniqueness, such as a one-time concert appearance or a once-per-year rival football game.

Consumer BehaviorConsumers enjoy those unique, limited-seating, live events In part

becauseoftheperformanceon stageoronthe field. ThereIs somethingIntriguing about observing the action firsthand. Some consumers maynot even care whether anyone else Is present For them the thrill ofthe live performance Is enough.

Other conswners, however, want more. Along with the perfor-mance Itself, theywant the ambience that comes from being part ofa group. They like shared experiences suchas doing thewave, lightingcandles,or yellingatplayersorperformers. The Idea that groupactionsaffect individual consumption behaviorcanbe traced to thenotionsofThornstelnveblen, snob appeal, and bandwagon effects (Lelbenstein1950). Recently, Roger Faith and Stephen Happel (1989) coined theterm “mob goods” to describe concerts and sporting events In whichexpected attendance strongly Influences demand by consumers.

The mob effect, or perhaps more appropriately the crowd effectas suggested by Lawrence Bitter In reading an — draft of thispaper, Is crucial to understanding ticket scalping and related pricing

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behavior.’ The crowd effect makes each event unique. There canneverbe duplication ofan eventwiththe samecrowd evenIfessentiallythe same performance occurs. The ambIence exists at the moment.The uniqueness, in turn, means that special memoriesare created forconsumers. The memories can be drawn on over and over again, forexample as consumers think about theIrfirst Super Bowl, World Series,or NBA finals.

The uniqueness and related memoriesexplain why someconsumersfeel so strongly about attending such events and having ‘laW’ accessto tickets, Certain consumers are willing to wait In line because theybelieve that selling seats first-come, first-served at the printed facevalue ofa ticket represents the best way to ration scarce seats. Theytrade theIr time in line for the money saved from having to pay ahigher price. Further, they even may derive utility front the queueItselt There canbe a crowdeffect from waiting with a certain groupofpeople,and anticipation may be heIghtened through the time spentin line. Lines seem perfectly rational to such consumers, and theydetestthe thoughtofpayingany amount above theprinted face value.

Producer BehaviorProducers, team owners, and concertpromoters are profit maximiz-

ers. They have a certaIn degree of monopoly power for an eventbecauseofits uniqueness. In addItion, they mayexercise considerablemonopolypower over selected seat locations because some locations(front-row center, club seats, suites) are preferred to others. Giventhis monopoly power, producerswant to charge what the market willbear and to engage In price dIscrimInation whenever possible.

At the same time, producers typically want sellouts. One reasonforthe full capacity desirecenters on the demand4namlcs associatedwith the crowd effect. The perception that an eventwill be a selloutattracts consumers Into the ticket market who would not attend other-wise, and the ambience from a sellout may lntens* the demand byconsumers for future events. A second reason for promoter desirefor a sellout Is to maximize complementary revenues from parkIng,refreshments, and souvenir sales at thestadium or concert hall. ThereIs also an important cost element, 15,plcally, themarginal costs associ-

‘Stepèen Ha~e1and Marianne JennIngs (1989) began with the notion of mob goods Inproviding reasons for low prices by promoters and In looking at general problems with theregulation of scalping. Cary Becker (1991) also assumed that demand Is posithely relatedto quantities demandedby other consumers to previde Inslajrts Into pricing by suooessMrestaurants, play~,and sporting events tharacterlzed by persistent excess demand. RogerFaith and Allan DeSerpa (forthcomIng) focusedon the Idea of aowd reactlonh%olse In afwtherelaborationofmob— equilibriumqueues, andwelfare effectsofticketscalping.

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TABLE IANTI-SCALPING REGULATION: STATE AND MUNICIPAL LEVEL

tr

Form ofRegulation States Adopting Municipalities Adopting’

Limits on resale price (Include suchlimits as $1 above printed price; $3service charge percentage

Owner4mmoter authorization forresale above printed ticket price

Location restrictions on scalping (nosales at event site, on stateproperty)

‘licket sales and resales limited toprintedprice

Arkansas, California, Connecticut,

Tennessee, WisconsinS Connecticut SMinnesota, Missouri, NorthCarolinaS Cahfomin

Louisiana, Maiyland

Washington, D.C.

Ann Arbor, Atlanta, Detroit,Edmonton, Portland, Virginia Beach

Anaheim, Arlington, Atlanta,Chicago, Cincinnati, Dallas,Edmonton, Milwaukee, Washington,D.C.Anaheim, Ann Arbor, Atlanta,Baltimore, Denver, Edmonton,Green Bay, Joliet Kansas City, LosAngeles, Seattle, St. Louis

Scalping prohibited only in certain Georgia, New Mexico, South Baltimore, Calgaiy, Cincinnati,events (e.g., athletics) Carolina Milwaukee, Minneapolis, New York,

Washington, D.C.Broker licensing Alabama, Illinois, Massachusetts, Atlanta, Seattle, Virginia Beach

New JerseyMunicipalities to regulate South Daketa,VirginiaCharity/nonprofit exceptions for Louisiana, Vn~thia

‘Those dUes l&ed In moon than one category have ansscdØnga’chnanoes with multiple component For exwnple~Atlanta prohIbits Sea In ~ea ofth. printed tit — unless such resales are kr charityor ale authorized by then or promoter. Further, Atlanta prohibits all reSes of lic4aetswiSa 20 ~et of the event

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ated with additional attendees, after basic maintenance and staffingexpenses are covered, are low until capacity Is reached.

Promoter desire for a sellout often Is combined with a preferenceabout the mixofconsumers actually attending the event. Owners andpromoters maywant true fans in the seats, orthey maywant to createa particular atmosphere, for Instance an event for the entire family(Nager 1985), Creating a situation where not only the richand power-ftil receive all the tickets generates positive morale effects. So produc-en often may want to control whoamong thepublic Is buying tickets.

While producers have a degree ofmonopoly power, market andregulatory constraints limit firm behaviorwith respectto ticket pricing.Market constraintsexist because fanscanquickly lose interest in teamsor artists whose performances do not meet expectationsor whocreateperceptions ofpricegouging. Groups and performers go quickly frombeing “in” to being “out.” Both eventattendance and complementarysales suffer as a result. Legal constraints Include a multitude ofstateand local statutes prohibiting resale oftickets above face value or atgiven locations. Major sports franchises areprohibited by league rulesfrom charging above a stipulated price for various seat designations,raising or lowering theper-game printed priceofthe ticket once theyare set for the season, and actively engaging in ticket scalping.

Faced with market and legal constraints, producers maypurposelyset the priceofcertain seats low (often general admission) to inducea line. The low price signals consumers that there will be likelysignificantdemand for tickets and that the eventwillbe well-attendedor sold out. Producers recognize that sizable numbers of consumersare willing to trade time in line for money to acquire tickets and thatmany of those consumers are strong fans whose support is neededfor ongoing profits.

At the sametime, producers mayby to increase returns in selectedseats through thewidespread phenomenon of“holds.” Holds are thebetter seats kept back l~rproducers from the public when generaladmission seats go on sale. Lines for the general admission seats canbe used to determine the market value ofthe holds as separate th)mtheir printed face value. If the line Is lengthy, then producers mayrequest special favors from radio stations, local politicians, or otherinfluential lndMduals as they are “given” tickets. Or producers maydecide to sell the holds directly to ticket brokers Ifthe market pricebecomes significant.

From both the producers’ and consumers’ perspectives, then, linesare rational for reasons not present In traditional demand models. Inthecase ofhigh-demand, limitedcapacity events, linesdo not necessar-ily represent miscalculations or errors in Judgment. Instead, they

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are a rational part of a market structured around the Importance ofa queue.

Ticket Scalping and Legal ResponsesA secondarymarket for high-demand, limited-seating-event tickets

always exists and creates the opportunity for ticket scalping. Ticketscalping is most frequently defined as buying (tickets) for later saleat higher than normalprices. “Buying for later sale” points to a thirdset of agents in the market along with consumers and producers.‘Hlgher” Is based on theoften-held perception that tickets are resoldonly for more than was paid, but scalping In thebroadest sense alsoencompasses the resale oftickets for less than paid. “Nonnal” harkensback to the notion that printed face value is the norm.

The secondary market occurs because seats are sold in advance ofevents. When a line Is expected, ticket scalpers are present becausetime maynot be a readily available commodity for some purchasers.Those buyerswould prefer to pay with moremoney. Typically,thoseconsumers have a high opportunity cost of time and view scalping asa legitimate market exercise. Scalpers are simply time brokers whoperfonn a useful service.

However, It Is crucial to recognIze that even when a line Is notexpected when tickets first go on sale, either becausean event is nota sellout or becausethe printed face valueclean the market perfectlyand a sellout Is achieved, scalping is inevitable. Some consumers withtickets will decide not to attend. Theywant to get rid of their tickets.Others are in the market for (good) seats up to the time ofthe event.Reallocation Is the natural outcome.

Producers, while wary of the process, must accept reallocation insome form, Iftheconsumers who Initially purchasedthe tickets fromproducers had to occupy seats or let them go empty, the advancedemand for seats would drop considerably. Accordingly, producersaccept “giving away” tickets to relatives, friends, orbusiness acquain-tances, and they generally see resale at printed facevalue for selloutsas “fair.” But they dislike nonregulated scalpers for a number ofreasons. When excess capacity exists and scalpers are outside thestadium selling tickets below face value, producers complain aboutthe loss ofrevenue from the seats they are offering for sale at thebox office that are going unsold because consumers are buying seatsfrom scalperL When tickets are sold by scalpers well above facevalue,producers complain about receiving none of the profit. And whenscalpers are loud or aggressive, producers complain about nuisanceeffects.

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Jerry Colangelo, president of the Phoenix Suns, spoke to a groupofstudents at Arizona State University and Indicated that he dislikedscalpers because “theymade moneyoff ofhim without his permission,and that was not right.” He also did not want the problemsassociatedwith counterfeit seats sold by scalpers or fans being hassled comingto the game. Finally, he pointed to the fact that he paId taxeswhilescalpers did not.

The first legislative controls on unfair pricIngpractices were foundIn the Shermanand Clayton Acts (which in general terms controlledprice fixing, tying contracts, etc.). The first legislation in the UnitedStates that focused specifically on ticket scalping appeared in 1918 Inresponseto lImIted-access stage shows.2 Then., with the rise Inpopular-ity ofcollege football and major league baseball, largestadiums werebuilt. Events like in-state rivalries and theWorld Series had fans liningup for blocks well before World War IL

The growth ofpopulation and per-capita income after World WarII further intensified the demand for in-state rivalries, the WorldSeries, and other such events. Accompanying this rise in popularitywas an Increase In season tickets. More season ticket holders meansthat fewer — seats are being sold on a per-game basis and thatthere are more event conflicts for consumers, resulting In a desire ontheir part to sell offtickets for certain games or shows. The Impactis an increase in scalping along with more insider trading In whichbox-office employees take tickets (for — seats) and resell them ata substantial profit.

Regulation ofticket scalping has ewlved and continues to be refinedamong the various states and municipalities. The first generation ofantI-scalping statutesbeganbytryingtocurb the“small-time” activitiesofon-site scalpers. At both the state and local level, laws were passedto prohibit the resale of tickets above face value (with perhaps anominal service fee), outlaw scalping on public property or within acertain distance of the event site, and require a license (see Table 1for a listing ofthetypes ofanti-scalping regulations). A sizable numberofstatutes appear to have been passed to try to limit nuisance effects.But, in manycases, the effects went beyond on-site Impacts, and Insome instances, producers who were trying to protect profits playeda prominent role in obtaining passage of regulations. All the earlystatutes madescalping a misdemeanorwith fines, possible jail senten-ces, and confiscation.

The first generationofscalping laws continued as the primary formof regulation through the 1970s as legislative bodies tried to control

~eopIe a ret. Coit Theater Co. I.C. Thompson. 283 set. 87. 119 N.E. 41(1918).

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TuzFou.y OF ANTI-SCALPING LAws

price, location, and nuisance effects.Changes In regulations includedIncreasing fines and jail sentences, and somelocalities turned scalpinginto a felonyratherthan a misdemeanor, Yet enforcement ofall typesof regulations remained sporadic and arbitrary. Large numbers ofpolice officers were neededat major events to round up on-site scalp-ers. But it was difficult to prosecute scalpers because most peoplepurchasing tickets from scalpers saw noreasonto testI~pagainst them.

Over the past decade a second generation of scalping laws hasemerged that carefully segments scalpers on the street from ticketbrokers oragents oper~tlngon thebehalfofproducers (see Table 2).Some states and municipalities have modified first-generationprohibi-tions and now permit licensed brokers to operate and to charge aprice that reflects their cost ofacquiring tickets. Some statutes havelegalized producers giving permission to their selected agents to sellseats above facevalue and on site. The second generation of scalpinglaws has brought the resale market closer to a purely competitivesituation.

Nevertheless, unregulated freelance scalping at the event Is stillillegal in most population centers. While enforcement remains

TABLE 2SECOND GENERATION REGULATION: STATES AND

MuMQPALmE5 PERMITrING RESALE

Form of Regulation States Adopting’MunicipalitiesAdopting

Owner permission Arizona, California,Connecticut,Kentucky,

tmMissouri,New Mexico,North Carolina

Ann Arbor, Atlanta,Detroit, Edmonton,Portland,

Ticket brokerspermitted

Florida, Illinois,Massachusetts,New Jersey

Baltimore, Calgary,Cincinnati,Milwaukee,Minneapolis,New YorlçWashington, D.C.

‘nit. eadst oftheseoond~generattonregulationswn thatofConnectIon~passedIa198&The remaining states — tSr new loansof regulation after 1968, wIth th. majoritypassing the changes In 1990 or later.

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sporadic and results in few convictions, there is something quitetroublesome from a flee-market perspective about restricting resaleactivities Just before an event The essence of the market for thosetypes oflimited-seating, one-timeevents Is theirhem-and-nownature.The time whenthegreatest fluctuation inprice Isoftenmost necessaryis Immediatelybefore an event so that those who most want to attendand are most willing to pay can Indeed get access.

Ticket Allocation SchemesThe most simplistic allocation scheme for an event is to have

reserved seats go on sale at one box office location at one pricestartingon a given date. For example, in their national tour in 1989, theRolling Stones charged thesameprice for all seats atall theirconcerts,and those seats were reserved. (Ifseatsare notnieseived seating, whenpurchased, then another line will develop at the time ofthe event asticket holders jostle for the best seats; and given the safetydifficultieswith stampeding and trampling, most big time events have reservedseating.) Refinements on that scheme Include having more than onebox-office location and permitting phone orders In addition to on-site purchases.

Such an allocation scheme createsqueues for major events, Scalpersor brokerswill hire “diggers” or H~fr~j~flto stand in lineor to makerepeated phone calls to acquire tickets (Goodman 1991). Consumerswho are fanatics or who have a relatively low opportunity costoftimewill also be In line. Some will complain about scalpers or brokerssqueezing them out of— seats even when restrictions are placedon the number of seats that can be purchased at one time. Some willalso complain about related nuisance effects,3

Another refinement is to have consumers stand in line to draw aplace In another line to buy tickets. Apparently, some producers feelthat this schemewill minimize the time people must wait by sendingsignals about theactual chancesofgetting tickets. But Itoften increasesthe time involved because some people line up very early for thedraw line even if the allocation of places Is random.

Faced with frequent long lines, producers may charge differentprices for various seat locations. One approach is to have two sets ofprices; for example, one for general admission and one for selectseating. Scalping may be moderated if— seats are priced consider-ably more than general admission, but It will still occur, and those

3Dlggersor drolds am frequents’ homeless people or suhataace abusers*~4tomq actual~’by to drive other people out of line when the number of tickets Is restricted per box-office vit

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TUE Foua OF ANTI.SCALPTJ4O L*ws

who can afford to paythe most will often end up with the verybest seats.

That last outcome appearsespecially troublesome tosomeperform-ers. For example, Bruce Springsteen felt that many of his true fanswere not able to attend his concerts in New Jersey because scalperswere driving up prices by using diggers and box-office Insider tradingto acquire tickets (Bershad and Ensor 1985). Of course, many ofhistrue fans who originally purchased tickets engaged in scalping as themarket pricewentup. The only sureway to guarantee that fans willingto endure a long wait get — seats and actually occupy those seatsIs to make them go Into the event Immediately after acquIring a ticketwith no chance for a resale. For big events the lines may form daysIn advance, but ardent consumers will get the best seats.

Recently, thephenomenon of“scaling thehouse” has become morecommonplace (Philips 1991). That pricing format Is a methodofpricediscrimination that charges a seriesofprices for different seat locationsto Increase profits and to fend offscalpers or brokers. One problemfor the producer Is to gather sufficient Information about demand tocharge the right prices. Another problem Is that thebetter seats clearlywill go to those with money.

A final scheme that avoids a precise knowledge of demand condi-tions for all seats at one time Is a Dutch auction. That scheme beginsbyofferingall seats ataveryhlghprlce wellln advance oftheeventand selling them first-come, first-served for a given time (say, a week).Prices then are lowered slightly, and this on-going price acbustmentcontinues up to the time of the event. Scalpers will be present, butthey will have to gauge the market more carefully than with one ortwo sets ofprices. In such a settingscalpers may spend much oftheirtime trading at pricesbelowrather than above facevalue, The problemwith the Dutch action from the producer’sperspective remains thepublic perception that only those who can afford to pay the most aregetting into big events.

Future Generation of Scalping LawsSeveraleconomic lessons are clear from ourdiscussion of entertain-

ment events and ticket sales. One is that continued trading of ticketsis inevitable up to the time of the event, and so producers must livewith the resale market. Another Is that producers are often quitesensitive to certain consumers’ perceptions of fair treatment In themarketplace. Finally, mostproducers and sizable numbers ofconsum-ers do not like scalpers. Even with the evolution toward legalizedbrokers and some on-site trading by permIssion of the producer,

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unrestricted scalping just prior to the event remains illegal in mostlocations.4

In thIs type of market, efficiency Is sacrificed by regulationbecauseInformation Is being restricted at the very time It could be mostbeneficial. Consumers who have seats to sell are going to be reluctantto spend a great deal of time gathering price Information for fear oflegal reprIsal. Thus theymaysell to scalpers at below what the marketIs truly willing to bear. The scalpers then turn around and chargehigh prices to those seeking tickets.

Twopoints must be addressed before further suggestions are made.The first Is whether thepurchase ofaticket from aproducer representsa licensed contract or a simple futures-like sale. Producers (like thePhoenix Suns) argue that the purchase of a season ticket Is a licensethey have granted and can rescind any time the ticket Is sold aboveface value. Their licensing interpretation serves to inhibit scalpers orbrokers and keep them from buying tickets in largeamounts forresale.The argument is rejected by market advocates and runs contrary tothe notion that a ticket purchase Is similar to going long in a futuresmarket, where indMduals are rewarded for buying low and selling

The second point focuses on the Issue of Just how much scalpers,through diggers and droids, driveup prices and squeezetrue fans outofgood seats. Ifthere are some diggers and droids in line, then certainfanswill not get theseats they would have preferred; and Ifthe eventIs a sellout, the scalpers can command higher prices. However, if itIs known that scalping activities are widespread and that diggers anddrolds will descend in mass, then consumers may simply wait to buytickets. As long as one or few scalpers are not buying all the tickets,this postponement can actually lead to lower prices. Whether thereare higher or lower prices depends on the scalpers’ collective abilityto read the market relative to the producer’s ability.

With adesIre for market clearing,we nowturn to a thirdgenerationofscalpingregulations. Insteadofhying to restrict scalping activities,particularly at the time of an event, scalping activities should beencouraged by having vendors operate in designated areas in boothsimmediately next to the stadium or concert hall.

To understand the need for this form of market clearing, supposethere are no anti-scalping restrictions. What happens for a majorevent? Vendors on event day operate In the vicinity of the stadiumor concert hail. In some cases thevendor locations mayeven develop

mae last timean anti-scalping ordinance was bandu ustitutlonalwas In 19fl See EsteRo. Blnnlngjaam 286 So. 2d 872 (Ala. 1973).

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a sense ofpermanence, and some vendors may by to build a loyalclientele by establishing a company name.

A significant problem with this approach is the fragmentation ofmarket information. Consumers must shop for price and wifi not beaware of all vendors In the market without extensive seart Also,there are the specific nuisance effects of people being hassled byscalpers either dIrectly or by the trafficcongestion that theycancause.Counterfeiting in such a fragmented market can become a majordifficulty If scalpers are elusive.

A similar market-clearing scheme is found at Australianrace trackswith touts or bookies. A consumer canplace bets either with the track(the on-course totallzator) or with bookies who operate on site. Thebookmakers must acquire a government license by payIng a fee andundergoingbackgroundchecks andverification ofassets. Thenumberofbookmakers on site maybe substantial (25 or more), and they alloperate in nearly identical booths. They post prices (odds) continu-ously, and unlike the trackthat pays out ofthe betting pool after therace is computed, bookies take bets at stated odds. Thus a potentialwagerer can shop among bookies for the best odds or bet throughthe house, meanIngarbitrage Ison-goIng. At times bookmakers enjoyrelatively large returns relative to the house, whereas at other tImesthey suffer significant losses.

SimIlarly, concentrating scalpers in a designated area means thoseconsumers who wish either tobuy or to seH tickets have fewer searchcosts. LIke the bookies, licensed scalpers or brokers could operate inbooths. Depending on the broker, bid and ask prices may be postedfor general locations (lower level, upper level, end wne), and theymay be updated frequently. Two questions remain. What should thelicensing requirements be and how are the booths to be allocated?

In licensing, one possibility Is to require something analogous tothe Australian tracks. Scalpers would have to pay a significant fee andgo through detailed background checks. Such an approach makes Itrelativelyeasy to havescalpers operate in the designated area, becauseanyonecaughtselling tickets on game dayoutside the designated areawould be arrested and finedorJailed, or both, with Just cause. Marketfragmentation is now minimized, as are nuisance efl~cts.In addition,strict licensing discourages counterfeItIng.

But, at the same time, strict licensing creates effective barriers toentryand the possIbilityofmonopolies or cartels. As a result,we reJectstrict licensing and instead suggest havIng relatively minor licensingrequirements. For example, anyone interested in buying or sellingtickets from a booth would simply show valid identification to an

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enforcement agent. The license would pledge that the person will nottrade counterfeIttickets andwill qulcldy settle buyer orsellerdisputes.

The booths themselves could be auctioned offthe day oftheevent,and the proceeds could be used In a public manner. In the process,economic profits are extracted from scalpers, which seems to makemanypeople happy. However,bidding for booths maycauseproblemsbecause the number ofbooths has to be limited to generate profits,and the profits become highly visIble, If the profits from biddingfall Into the public domain, there are all the attendant problems ofdisclosure ofcommittee decisions, proper accounting, and the actualcreation ofpublic welfare. If the bids fall into the promoters’ domain,the public sees conspiracy and Insider trading. Only by having freeaccess to the booths In the designated areas Is the public generallyassured of high degrees of competition.

Therefore, we propose that the booths be randomly assigned onevent day at aprearranged time. The designated areaneeds to be largeenough to accommodatea significant numberofbooths, preferably asmanyas there are licensed agents who want to trade. When assignedtoa booth, an agent could be given special envelopes with theprintedboothnumber to give out to buyers and sellersoftickets as the tradesoccur. In that way counterfeiting and other shady trading activitiescould be monItored.

Ourproposal ofnonrestrictive licensing and open access to boothslikely would result In some traders continuing to have a presence Inthe market while others would be affoded the opportunIty to entermarkets for a limited numberof events. Naturally, there will still bescalpers who will try to trade on street corners away from the desig-nated area.While thepolice could do periodic sweeps to arrest them,we believe that most consumers would be reluctant to buy from themwithout theknowledge ofthecentralized market orforfearofreceivingcounterfeit tickets.

SImilarly, there will be some people at the designated area whowill try to sell tickets wIthout a license. We believe that they shouldbe allowed to operate, but consumers buying from them will clearlyhave no guarantees about counterfeit tickets. Whether there Is a largeorsmall numberoflicensedtraders in booths in aparticular designatedarea will depend on the pricing practices of licensed traders andon consumers’ preferences for convenience or avoidance of shadytrading practices.

Insider TradingA final Issue that must be addressed is Insider trading. Public toler-

ance of scalping at the time ofan event stems from the notion that

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anyone can stand In line (orpay others to do so), acquire tickets, andthenchargewhatthemarket willbear. However, Ifthepublicperceivesthat promoters are controlling or riggingnot only Initial sales but alsothe resalemarket, orifbox-officeemployees are Inleague with scalpersto acquire choice seats, reaction is lIke~’to be strong.

The public’s concept ofa free market traditionally does not coverthose who obtain access or Information by means not available toeveryone. An analogy is the harsh sanctions against Insider tradingInsecurIties. Anyonecanspendthe timeand moneytoresearchasecurityand the offering company, but not everyone would have access to alavI!yer at a firm that handles the company’ssecurity offerings. InsIderaccess is the line of demarcation for public policy In free-marketregulation. Anyone can spend the time to stand In line fortickets orpay the funds to hire others to do so or run ads seeking tickets, butnot everyone can gainaccess to a promoter ora box-office employee.Regulators thus must respondIn some wayto thepublicpolicy concernof the level playing field perceived to be lost If Insider control ofthesecondary market Is permitted.

With strictlicensing, apossible means ofcontrolwould be to requirescalpers to disclose all ticket sources. In scalping, competitors andconsumer groups mIght scrutinize sources. With minimal licensingand alargenumberofbooths, aswehave suggested, acquirIngaccuratedisclosure forms from all vendors can be difficult. Actual controlwilldepend on the extent to which local authorities are pressured bycomplaints ofInsIder tradingbybox-officeemployees orbypromoters.For some Jurisdictions, the problem of perceived unfeirness withInsidertradingmaynotbe sufficientlycompelling to requirelegislationor regulation.

ConclusionScalping is Inevitable as long as there are advance ticket sales for

big-time events and fan pressure to keep prices affordable to thegeneral public. Our suggested legislative reforms recognIze thosemarket realities and push for legalIzed scalping at the event site. Inmost cases, the result ofthe reforms will be smaller economic profitsfor scalpers as competitive pressures and greater open-market accessreduce the range betweenbId and ask prlcea. Through licensing, on-site nuisance effects would be restrIcted to a given area. Overtime,the numberofscalpers will be a function of the producer’s ability toread themarket at thetimetickets go on saleandanticipate subsequentchanges In consumer desires up to the time ofthe event

Of course, many producers and certain consumers will resist thesuggested changes. Consumers unwilling to pay higher than face-

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value prices will continue to complain about the inequIties of theseconclaty market. That is the vely time, however, that advocates ofprice adjustments as the best approach to scarcity must once againpoint to the follyof anti-scalping laws.

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