London Scalping Case
London Olympics Scalping Case

1. It appears that the Olympic ticket market is inefficient, as evidenced by the presence of scalpers, and segmented between Ticketmaster, eBay, and scalpers. Based on information in the article, I make the assumption that demand exceeds supply because almost all tickets are being sold at or above face value and the ballot process left many without tickets. This is due to the fact that there is a fixed supply and a relatively low price ceiling. Graph 1 depicts the current Olympic ticket market in terms of supply and demand.

Graph 1:

2. While there is a strong secondary, legal market with Ticketmaster and eBay, illegal ticket scalping is still occurring all over London. The reason people are still using scalpers for tickets instead of the official resale site is primarily because only scalpers can provide last-second tickets. This is a form of third degree price discrimination that allows scalpers to take advantage of the fact that people have little time to adjust to the prices, and different segments will pay different prices for the tickets. Scalpers price discriminate and increase prices if a lot of people decide last-minute to attend an event, perhaps because Andy Murray, a Brit, made the finals at Wimbledon and there is only a day in between to get a ticket, or something similar. On the flip side, scalpers can also price discriminate and lower last-second prices to cut their losses on unsold tickets. This is not only third degree but also first-degree price discrimination because they can offer tickets at as close to the reservation price of individuals as they can. They do this by negotiating prices and starting high in their initial offer. To combat this, London should design a system with e-tickets that can be bought up to the last second and can simply be printed or shown on a smart phone. They could even include last second deals. A secondary scalper advantage that allows them to profit is the convenience of buying tickets directly at the venue, and this contributes to their price discrimination advantage discussed above. The London Olympic committee should resell those tickets found on their official site that have not yet been sold at the venue.

3. We must assume scalpers will only scalp if they are making a profit. Thus scalpers must profit more than 30,000 pounds multiplied by their assumed probability of getting fined. Put simply the reward must outweigh the 30,000 pound risk. The scalper sees the ticket shortage and potential opportunity and buys up tickets to sell to those with the highest reservation price. Apparently 30,000 pounds is not enough of a threat to stop scalpers from exploiting this market inefficiency and their role as a market maker is highly profitable, allowing scalpers to economically succeed and continue to operate with the fine in place. Also, the fine may actually have scared off many scalpers, but that just creates even greater financially opportunity for those still willing to scalp. The fine may decrease the number of scalpers, but as long as there are some who will assume the risk, they will get a larger piece of the pie and maximize their personal profits.