Price Caps on Secondary Ticket Sales Are Just Bad Policy

There is no question that the average cost of live event tickets has risen steeply, particularly for musical performances. It has led to frequent calls by various parties for government intervention into what seems to have become a dysfunctional market. Much of the public’s ire focuses on Ticketmaster, which controls a majority of primary ticket sales for U.S. live events. For their part, Live Nation (Ticketmaster’s parent company) and many other large industry players blame the secondary market—that is, the reselling of tickets by those who initially purchased them.

While there are some legitimate issues with fraud and “scalping” on the resale market, some U.S. lawmakers at both the state and federal level have latched onto the idea that secondary ticket sales are a problem in and of themselves, aiming to solve that problem via direct price caps. For example, a recent bill proposed and passed in Maine caps resales of event tickets at 10 percent above their initial sale value. A similar price cap has been proposed but not passed in the District of Columbia. Meanwhile, Live Nation has suggested in comments to the Federal Trade Commission that there should be “a national 20% cap on resale markups and service fees on concert tickets.” Capping prices on ticket resales is a foolhardy market intervention that would certainly harm more consumers than it would benefit.

Prices are the fundamental signal that convey the real value of goods in the market. The fact that secondary ticket costs can greatly exceed their initial price can indicate many things beyond a failure in the market. It is certainly true that rent-seeking behaviors like scalping can contribute to higher prices at the expense of both consumers and artists—an issue that, in the age of the internet, can be magnified by automated bots. And surely it can be frustrating to see resale ticket prices climb to thousands of dollars each for the most popular concerts.

At the same time, these less-than-honest secondary market tactics would not succeed without the gap that exists between initial ticket prices and what the market actually bears. Each live act or event can only provide a finite number of performances at venues that can only accommodate a finite audience. Various studies have shown a persistent preference by many popular artists for keeping ticket prices lower than market value. There are many reasons for this, from artists not wanting to seem like the bad guys for charging high ticket prices to a genuine desire to allow fans of all income levels to be able to see them live. Venues and event promoters also have strong incentives to keep prices lower than market value.

The secondary market does more than merely provide an arbitrage opportunity for resellers—it is essential for tickets to flow to where they are most valued. Demand for all but the most highly coveted event tickets tends to fluctuate over time. Some people are willing to pay a higher price to guarantee a spot right when tickets go on sale; others wait until closer to the day of the show, when resale prices tend to be lowest. While some secondary sales reap a large profit, a recent study found that over half the events sampled were offering tickets at prices below their original face value.

Economists have warned consistently that price controls cause harmful distortions to markets, and the live event ticketing market is no exception. The caps may discourage illegitimate practices like ticket harvesting and scalping; however, they also discourage legitimate resale services from participating in the market. This would likely lead to ticket shortages among legitimate resellers and would penalize any would-be concertgoers who did not or could not participate in initial sales or presales. Additionally, studies on ticket resales in places with ticket-resale price caps show that actual enforcement is difficult at best and that consumers are driven instead to unregulated markets where fraud is more prevalent. Meanwhile, as the United Kingdom considers similar price caps, a Centre for Economics and Business Research report warns that they are likely to result in more unsold seats and fewer ticketholders bothering to resell unused tickets.

Finally, it is no coincidence that Live Nation ardently supports capping resale prices because having the government stamp out ticket resellers would greatly increase their control over the ticketing markets. It would be ironic for the government to impose price controls that entrench the most dominant live event companies even as the Department of Justice attempts to break up Live Nation due to their alleged monopolization of multiple layers of the industry.

There are some legitimate consumer protections that the government can implement to combat the less-desirable practices in ticket resales. For example, Congress passed the Better Online Ticket Sales (BOTS) Act in 2016, making the automated mass purchase of tickets for resale illegal federally. President Donald J. Trump recently signed an executive order demanding more rigorous enforcement of the BOTS Act, as well as demanding price transparency and greater scrutiny of other fraudulent activity in the resale market. In general, however, lawmakers must acknowledge that secondary ticket markets are an essential part of the live events market and let the laws of supply and demand do their work.