Chasing Away Scalpers Only Hurts Consumers

Earlier this year, the Kennedy Center announced that the award-winning musical "Hamilton" would be coming to Washington, D.C. in June 2018. If you'd like to get tickets, you have a few options.

• First, to be guaranteed tickets, you can purchase season tickets for the 2016-17 and the 2017-18 seasons.
• Second, you can wait and hope the Kennedy Center doesn't sell out, and purchase them through the box office.
• Third, the option most people will probably choose: You can wait to buy tickets on the secondary market through websites like StubHub or SeatGeek.

However, if the show's creator and star Lin-Manuel Miranda has his way, finding tickets on the secondary market will become much harder.

In fact, if the Better Online Ticket Sales (BOTS) Act becomes law, it might be impossible. The BOTS Act, supported by Miranda and championed by Sens. Jerry Moran (R-Kan.) and Chuck Schumer (D-N.Y.), would put an end to the use of software by ticket scalpers to purchase large amounts of tickets to be sold online.

But before we rush to end this practice, we ought to ask ourselves if ticket scalping is even a problem.

Scalpers perform a necessary function in the market for tickets. As economist Tracy Miller recently pointed out, scalping is actually a service to event-goers because it gets tickets to those that value them most highly.

As a type of speculator seeking to match buyers and sellers, scalpers adjust their prices to account for supply and demand in a way that box offices and venues choose not to do. In the process, they take on the risk of not being able to resell their tickets.

If the event generates higher demand, prices rise. If it loses demand, prices fall. Fundamentally, it's no different than what investors — from stock market traders to homebuyers — do when buying an asset they hope will appreciate in value.

If venues, artists, and sports leagues really want to stop scalpers, the solution is easy: Raise ticket prices. With higher prices, scalpers would be unable to profit the way they currently do, and much of the problem would simply go away.

However, venues are unwilling to do this.

Why do venues price their tickets artificially low? (Here's a hint: It's not so everyone can afford to attend.)

There are several reasons: A sold-out venue provides a reputational benefit for artists. Gary Becker, the late Nobel Prize-winning economist from the University of Chicago, explained that lines outside a new restaurant or a two-month delay for tickets to a show on Broadway are a signal of the product's quality.

It certifies that, at the given price, the product is worth waiting for. Raise the price to the appropriate level and the lines goes away, and so does the reputation that it brings.

Also, venues may not be as interested in making money from tickets as they are in maximizing sales of complementary goods. Getting people to the event is just one part of how these venues make money. Parking, food, memorabilia and television rights (in the case of sports teams) is where much of the money is really made.

In the case of the Kennedy Center, selling tickets to "Hamilton" is not the goal; using "Hamilton" tickets to increase season-long subscriptions is what they're really after.

So scalpers and original ticket sellers don't always want the same thing.

And as long as ticket resale software provides the opportunity to buy and resell tickets, scalpers are doing most box offices and consumers a favor. Tickets are sold quickly at a lower price (to the benefit of the venues) but are still available later at market value (benefiting consumers who desire them the most).

Still, if venues want to underprice their product, does that benefit consumers?

Not exactly. It benefits certain consumers. For example, it benefits those lucky enough to win a ticket lottery or refresh the box office website at the right nanosecond. (Fair enough.)

Or it may benefit those with the free time to stand in line or who are savvy enough to get their underpriced tickets first.

Those are legitimate ways to determine who values the tickets the most. Another way to determine the real value is what someone is actually willing to pay. Thanks to scalpers, each has the opportunity.

Some box offices have decided that they are unwilling to allow scalpers to purchase tickets in large quantities, and they are more than free to make that decision. However, if the BOTS Act were to become law, it would create a federal ban on the sale or purchase of the software that these resellers use to purchase tickets from box offices.

In effect, those who have decided that they don't want scalpers purchasing their tickets would be forcing that decision on every other venue in the country.

Using federal power to defend the practices of a few sellers at the expense of others is as unwise as it is unnecessary. Ticket scalping has been dealt with primarily at the state and local level.

Currently, 31 states and the District of Columbia have some type of anti-scalping regulations on the books. Indeed, Miranda recently pressed the New York State Legislature to pass its own prohibitions on the use of software by ticket scalpers. He succeeded, and scalpers using software in New York may now land in prison.

Now he wants to take his anti-scalper efforts on a nationwide tour.

Policymakers should let consumers decide the best way to purchase tickets, which is exactly what they are doing when they choose to purchase from an online reseller.

Websites can then choose whether to let certain scalpers list their tickets and how to handle fraud. When need be, state governments can and do get involved.

There's no need for Congress to join the show.