W HY A RKANSAS ’ S A NTI S CALPING L AWS S HOULD B E
R EPEALED
By Alex Cartwright
3/7/13
Unlike many states, Arkansas law criminalizes ticket scalping (selling
tickets above face value); lawbreakers can be fined up to $500.00. Although
defenders of the criminalization of scalping assert that it protects consumers, a
more compelling argument is that criminalization limits consumers’ choices and
transforms conduct that benefits all parties involved into a criminal offense.
Experience demonstrates that anti-scalping laws promote the very
consequences that entertainment performers and venues would want to prevent:
counterfeiting, fraud, and customer dissatisfaction. By prohibiting secondary sales,
policymakers have created an underground market with regrettable consequences:
* secondary sellers have moved their operations outside the state and
beyond the reach of Arkansas law;
* underground markets have encouraged counterfeiting, since the sellers
cannot be located;
* underground markets have encouraged fraud by unscrupulous vendors
who misrepresent the availability and quality of seats, and who fail to deliver
tickets to the buyer after purchase;
* underground markets have created consumer confusion that allows sellers
to misrepresent their identity on websites so as to mimic the identity of the venue,
performer, or agent and thus create higher prices for consumers.
Representative Doug House has recently introduced HB 1404, which
appears to be an attempt to address and eliminate the problems described above.
The passage of HB 1404, which would decriminalize ticket-scalping for any
“music entertainment event,” would improve the life of Arkansas consumers.
Sellers scalp tickets because the supply of tickets is scarce. Once that supply
has been purchased, tickets often appear for resale on the secondary market.
Consumers may choose to resell their tickets if a scheduling conflict arises or
simply because they are offered a price that is more attractive than attending the
event. In either case, reselling a ticket at a profit, even though buyers
conventionally think of tickets as their own property, is illegal in Arkansas.
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Many object to anti-scalping laws on principle, pointing out that such laws
limit individual liberty and free trade between consenting adults. In addition to
such objections, there are harsh practical consequences to scalping’s
criminalization. Such laws burden government by requiring it to expend both
police and court resources on apprehending and prosecuting individuals engaging
in voluntary trade. Furthermore, consumers willing to pay a market price for
entertainment tickets don’t get to attend the shows they want.
Though the term “scalping” carries a negative connotation, ticket scalpers
provide a service that improves others’ lives: they lower the transaction costs of
buying tickets. Just as a delivery service could charge to deliver goods like dry
cleaning or pizza, ticket scalpers spend time searching for tickets that consumers
want. Scalpers risk capital in purchasing tickets, and hope to resell them to
consumers: Roughly 30 percent of all concert tickets are sold on secondary
markets in the United States today. Consumers who don’t have the time or
knowledge to hunt for tickets to a popular entertainment event are typically willing
to pay a scalper for this service. The business of scalping entails risks along with
profits; ticket scalpers routinely make mistakes in their estimation of supply and
demand, getting stuck with tickets that they must sell at a loss or cannot sell at all.
Policymakers should note that outlawing ticket scalping does not eliminate
the market in tickets or the practice of scalping. Rather, it shifts transactions to an
underground sector of the economy. Underground markets present inherent risks to
the public. Because there are no legal protections in an illegal market, a ticket
vendor has a better chance to sell counterfeit tickets without punishment.
Furthermore, underground-market ticket scalpers cannot easily advertise that they
are selling tickets, because competition is dampened in underground markets.
Consequently, in an underground market, buyers are likely to pay higher prices;
state government loses too, given that underground markets are untaxed.
A common argument for outlawing ticket-scalping is that ticket scalpers
abuse consumers by selling tickets at prices above their face value; such sales are
allegedly not fair. But this argument -- that charging a high price for tickets is
wicked -- seems almost self-refuting, given that it seems inherently unlikely that
anyone would buy a ticket to an entertainment event (or, indeed, any other luxury
good) if he or she thought the price of the ticket was genuinely unfair to the
purchaser. People have to buy necessities, but a ticket to a Justin Bieber concert is
a classic case of a luxury good.
________________________________________________________________ The Advance Arkansas Institute is a non-­‐profit public policy research organization. Its publications are available at advancearkansas.org For more information, please contact the Institute at (501) 588-­‐4245 or [email protected] ________________________________________________________________ Other critics of the decriminalization of scalping object to allowing
secondary ticket markets on the theory that allowing tickets to be resold could lead
to automated computers, or robots, purchasing all available tickets before any
consumer is able to. The company with the robots, so the argument goes, is then
able to sell all the tickets to consumers at higher prices. As a general matter, there
is little or no reason to believe that a venue would regularly underestimate the
economic demand for the tickets it sells; therefore, it is unlikely that the venue
would permit a computer to buy all the tickets and generate profit that the venue
would have made. Many stores limit the quantity of an item that one consumer can
buy to account for this same problem. Using robots to buy large quantities of
tickets should be illegal only if the ticket-selling institution prohibits the practice in
its terms of sale; there is no reason to believe that the public needs to be protected
from firms who want to price and sell their tickets in the manner they choose.
Of course, if businesses that sell tickets don’t want computers to buy tickets
and don’t have the power to prohibit them from doing so, then laws that outlaw
using robots to buy tickets are arguably appropriate. Allowing robots to have an
unfair advantage over human buyers and sellers does not suggest a fair trading
environment; however, eliminating that problem does not entail making ticketscalping illegal. Solving the problem of unfair robot purchasing would entail
making robot purchases illegal. This problem appears nonexistent: As a general
matter, ticket-selling businesses appear quite eager to authorize the sale of tickets
over the Internet to anyone or anything which will pay those tickets’ cost.
Though some see the use of robot buying systems as a type of insider
trading, this analogy is confused. Insider trading takes place when one party
unfairly obtains information from a company “insider” (typically an employee)
about news that will move a stock price. The goal of insider-trading regulation is to
prevent fraud and to maintain public confidence in investment markets. These
policy goals are not applicable in the context of buying tickets to private-sector
entertainment events.
It is of course possible to imagine cases in which something like insidertrading regulation would be needed, such as a ticket-selling employee who secretly
accepts a bribe in exchange for granting preferential treatment or illegal rebates to
certain buyers. But such actions are already illegal in Arkansas. Similarly, there are
already prohibitions against the fraud and counterfeiting that some people allege
will result from elimination of the state’s anti-scalping laws. As a general matter,
advocates for limited government should resist the argument that it’s better for
concert venues if we keep things the way they are; this status quo argument
appears to be motivated by the desire to make taxpayers pick up the tab in what is
really a civil dispute between private parties.
Although some original ticket-sellers would prefer to maintain the status quo
(perhaps because the status quo allows them to shift some of their costs of doing
business onto the criminal justice system), there are several steps that original
ticket-sellers could take in order to protect their legitimate interests. For instance,
original ticket-sellers might print the terms of sale on each ticket, or issue tickets
only to named people or groups. A better alternative for these sellers would likely
be to take measures to facilitate the legal, above-ground consignment and resale of
tickets.
To summarize: Laws prohibiting ticket scalping make it illegal for
consumers to buy a ticket at a price they are willing to pay. 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.
Alex Cartwright, the coeditor of the Advance Arkansas Institute’s Action
Plan for Arkansas 2013, will graduate from Hampden-Sydney College this May.