Lecture #3 (1 hour)

Scalping (continued)

1. Why do people oppose scalping?
        tax evasion [but transactions wouldn't all be cash if scalping were legal]
        distribution goals -- 
             poor folk and kids should be able to see games at reasonable prices 
             (this is a bogus argument; the real reason is the next one)
        greed, jealousy, and interdependent utility functions 
             (e.g. the Chicago priest and the elderly woman who won 
              tickets to a Cubs playoff game)

2.   Why don't promoters set higher nominal prices?
      Why let scalpers get some of the rents?

• risk reduction and insurance - what if demand is lower than expected?
       [depends on estimating the price elasticity of demand; also assumes that changing prices mid-season is costly]
• tie-in sales - charge less for tickets and more for shirts, etc.? doesn't seem right to me.
       [ but makes sense if you think  of it as promotional pricing, combined with price discrimination]
• It's bad public relations to gouge the public; keep ticket prices lower and appear to be nicer
       [so why not set prices higher and then offer discounts???].
• use high-demand tickets for personal favours, etc.

Former UWO student, Rob Godfrey, and friend

for Next Time:   please read Chapters 3 and 4 of the textbook.