Lecture Issues in economics today - Chapter 35

This chapter presents the following content: The supply of labor, the demand for labor, high wage rates and economic rent, real wages and productivity, the minimum wage dispute.

Chapter 35 Ticket Brokers and Ticket Scalping   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Chapter Outline • BROKERING AND SCALPING • AN ECONOMIC MODEL OF TICKET SALES • WHY PROMOTERS CHARGE LESS THAN THEY COULD • AN ECONOMIC MODEL OF SCALPING • LEGITIMATE SCALPERS McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Brokering and Scalping Brokering : the act of buying a ticket and legally selling it at a price higher than its face value • Scalping : the act of buying a ticket and illegally selling it at a price higher than its face value • There is no economic difference between these acts – A broker likely works out of an office and sells over the phone or the internet whereas a scalper sells on the street     McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved An Economic Model of Ticket Sales: Marginal Cost • The key difference between producing an event and producing a typical good lies in the shape of the marginal cost curve – For an event, marginal cost is probably constant (a horizontal line) up to the capacity of the facility where it becomes quite high (a vertical line)   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Looking a Marginal Cost MC MC MC MC Q A Typical Good     McGrawưHill/Irwin Q AnEvent â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved The Promoter of an Event The promoter of an event is the “firm” in this model • The promoter – is a monopolist for the event – searches for a venue – arranges for the talent to perform – pays the talent – sells the tickets   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved The Promoter as Monopolist P MC Pmonop MR D Capacity Qmonop   McGraw­Hill/Irwin   Q © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Conclusion of the Monopoly Model • The monopoly price is likely to be more than the price that would sell out the facility • Sellouts should be rare if promoters are profit maximizing • Scalpers should have no place in a monopoly model because scalpers only make money when they can sell tickets above their face value price   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Searching for the Perfect Arena P MC Pmonop MR D Qmonop= Capacity   McGraw­Hill/Irwin   Q © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Capacity Pricing P MC Pmonop Pcapacity MR D Capacity Qmonop   McGraw­Hill/Irwin   Q © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Why Promoters Charge Less Than They Could • They may not have good information on the price they ought to charge • There may be some “excitement” factor to a full stadium that appeals to the performers and that is worth the loss of profit • The performers may want a reputation of charging a “fair price.” • The performers may want some mechanism other than price to separate the “real fans” from those with money • Ancillary sales of shirts and other memorabilia are important sources of revenue • A low price for tickets can provide word-of-mouth advertising for them and generate interest for their talent     McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved A Model of Scalping Price Sby scalpers A Dead Weight Loss GFB F E P* Pface value B G Shortage D C   McGraw­Hill/Irwin QS Q*   QD Q © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Scalping=Brokering • Economists insist that there is no difference between brokers who sell in offices and scalpers who sell on streets • Both get tickets from those who want them least (willing to accept the least money) to those who want them most (willing to pay the most money)   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved  ... McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Brokering and Scalping Brokering : the act of buying a ticket and legally selling it at a price higher than its face value • Scalping... provide word-of-mouth advertising for them and generate interest for their talent     McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved A Model of Scalping Price Sby scalpers... high (a vertical line)   McGraw­Hill/Irwin   © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Looking a Marginal Cost MC MC MC MC Q A Typical Good     McGraw­Hill/Irwin Q AnEvent â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved