Ticket scalpers

Bruce Schneier draws attention to the CAPTCHA-breaking aspect of this article by Jeff Atwood, which discusses how ticket brokers are circumventing Ticketmaster's CAPTCHAs in order to buy tickets for concerts in bulk, and then resell them at a higher price.

I would like to draw attention to another, more boneheaded aspect of Jeff Atwood's otherwise great article. I quote the boneheadedness:
scalpers are evil, profiteering bastards, to be sure. They deserve all the pain we can send their way.
Jeff Atwood might not be a communist, and the communistness of this statement might not be obvious to you. But this is a communist statement.

The economy is all about the distribution of scarce resources. If resources weren't scarce - for example, if we mechanized agricultural production to the point where it literally took 0.000% of the workforce to produce all the food we need, rather than some 2% that it takes today - well, if food could eventually be produced like that, then it won't be scarce, and all the kinds of food we know today would be free. Bread and butter would be essentially open source, like Linux, and people would instead be paying, if they choose to, for fancier designer foods that would taste better because they require special designer input.

But we are not yet there. As it is, food is cheap, compared to what it used to cost. Some 100 years ago, it used to take the efforts of most of the workforce to provide the food that everyone needed. So food today is less scarce than it was, so it is cheaper. But different foods still remain scarce to an extent, so they aren't free.

Now, The Economist recently published predictions that food is going to become scarcer in future years, at least in part because some U.S. agriculture is going to be diverted (somewhat foolishly) to ethanol production.

Now, suppose that food prices are currently such that they clear the market. If the prices were drastically higher, food would not be sold and would be sitting around to spoil, because people could not afford to buy as much as is produced. On the other hand, if prices were drastically lower, people might want more of it than production capacity allows, so there would be shortages.

Suppose that food was free, or drastically cheaper than production allows. This is the situation that used to exist in communist countries. People wanted food to be cheap, but productivity was low, mostly because of the inefficient communist systems. So there was not sufficient food for everyone. Yet, the Party dictated that prices must be low, because this is what people require. So what happened? People started queueing up in front of shops at 4 AM on the day when food would be received. The first people in the queue got the food, at the cheap prices. If you arrived too late and were at the end of the queue, the food would run out and you would get nothing. You would then have to buy your food on the black market, paying a much larger price.

This actually did happen for decades, not just with bread and milk, but also with shoes, cars and most other consumer items.

So, what are we to do if The Economist's prediction becomes true and food becomes scarcer? Well, because we live in partially sensible - i.e., partly free - economies, prices are going to rise until they cause demand to fall in accordance with decreased production. Because demand will fall at higher prices, shops will remain stocked and no one will have to queue around for anything. We'll just have to pay higher prices.

But if the same production decrease happened in a communist economy, food prices might remain the same, because raising prices would give people the impression that the communist system is failing, and this would threaten support for the Party. But with prices remaining constant, demand would also remain the same while production falls, shops would begin to run out of food, and people would have to stand in queues or buy their food at higher prices in the black market.

So how does this relate to Ticketmaster?

Concert seats are scarce; there are only so many of them. If scalpers are able to buy tickets in bulk and make a profit reselling them online at much higher prices, then this indicates that people are willing to pay much more for the tickets than the price charged by Ticketmaster. Tickets are too cheap. If the people selling them had any economic brains, they would raise ticket prices to the point where the difference between the ticket price and what the market will bear is too small to provide a profit for the scalper.

As long as tickets remain underpriced, scalpers perform the economically useful function of ensuring that tickets go to those buyers to whom they are most valuable. If I am willing to pay $250 for a show that has sold out at $60, why should I not be able to buy it at that price from a scalper? The scalper has performed an economically useful role of reserving a ticket for me. If there were no scalpers, I would not get my ticket, because I wouldn't know in time that I had to queue in advance in order to get it.

Yes, someone else is now missing out on not seeing the show for $60. But if I'm willing to pay $250 for that ticket, and he's not, then seeing the show has more value to me than it has for him, and the overall benefit is greater if the ticket is reserved for me, and I see it.

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