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I don't think they're evil unless the taxpayers happen to be bankrolling their downside.

> I don't think they're evil unless the taxpayers happen to be bankrolling their downside.

The taxpayers made that decision, so it's unclear why you think that the recipients are evil.

I think that the taxpayers made the wrong decision, but ....

Didn't the decision from the representatives of the taxpayers come in partly from both regulatory capture and sheer extortion?

Regulatory capture is a consequence of regulation. Folks who demand regulation are in little position to complain about regulatory capture.

As to extortion, the "everything is failing" stuff came from regulators who are still in place. By contrast, the admiral and general in charge of Pearl Harbor on Dec 6, 1941 were replaced almost immediately....

The evil ones are the ones who happened to be advising the representatives of the taxpayers claiming—with unfathomable conflict of interest—that multiple major banks failing would be a doomsday scenario to be avoided at all costs.

> The evil ones are the ones who happened to be advising the representatives of the taxpayers

The advisors weren't significantly different from the representatives. Does that make the representatives more or less evil than the advisors? Does it matter?

Given that this is how things are going to be if we have this sort of regulation, are we really benefitting from this sort of regulation?

I think that we should always evaluate based on realized benefits and incurred costs, not desired benefits and promised costs. However, our actual policies show that most people disagree with me.

It seems to me the value the scalper providers is an exchange not an arbitrage. Sellers probably don't care when they sell as long as they do. Buyers probably find the lack of transparency inconvenient.

If you setup a fair exchange where genuine buyers bid and genuine sellers offered and everything cleared at a specific time at one price for everyone, sellers and buyers would get better prices, which everyone would think was fairer, and all possible exchanges could occur.

If this were the only way that scalpers operated, then I would agree that they'd be a social good. Instead, there are a number of scalpers who wait in line, knowing full well that they're not going to the game/show and they'll sell the tickets to someone who wasn't fast enough to get in line. This sort of thing happened in Dubai, where some folks would buy shares in some real estate venture, and then flip it to someone further back in line.

True, but as much as we HATE those guys who line up for the first Xbox360 / Wii / Playstaion 3 trying for the ebay flip, they are technically not doing evil. The ebay flippers allow MSFT / Nintendo / PS3 to charge $1000 on launch day so that demand == supply, but the game companies won't do it for social / PR reasons.

The ebay flippers allow MSFT / Nintendo / PS3 to charge $1000 on launch day so that demand == supply

The only winner here is the scalper though. The customer Microsoft, Nintendo and Sony are put in a lose/lose position.

The scalpers have the highest profit margin while the real fans who buy the extra games have $500+ less to support the companies that are bringing real value to the market.

The only winner here is the scalper though. The customer Microsoft, Nintendo and Sony are put in a lose/lose position.

The customer has a choice on whether or not it's worth the purchase. To the customer who values the item (Wii/Sporting Event/whatever) over the (inflated) cost, it is a net gain, not a loss. To the person who doesn't value it above the asking price, they don't have to pay, and they don't have to get the item.

I bought my Wii for an inflated price on eBay and I have no regrets about it. I have a friend who bought her Wii at an even more inflated price (almost double the asking price, if I remember correctly), and she also had no qualms about it.

Furthermore, scalpers who wait in line for hours to buy tickets/game systems, and then flip it for profit are essentially providing a paid service to those who are too impatient, late, or otherwise incapable of buying said items when they go on sale, knowing that there is a limited supply that will not meet all the demand.

The customer has a choice on whether or not it's worth the purchase. To the customer who values the item (Wii/Sporting Event/whatever) over the (inflated) cost, it is a net gain, not a loss.

That is too short sighted of an analysis. Too much value is being lost by unnecessary overhead. Have you noticed how overhead is something to be eliminated by every company except the middleman's themselves?

With your reasoning, would it be a "net gain" for someone pay more for oxygen than you if some scalper managed to monopolize all the oxygen? There are probably plenty of people richer than you that would pay for the "true" (sarcasm) value of oxygen. Would it be a "net gain" for someone to buy up all the land and charge a million euros per square acre? Somehow, I think your answer to this question will still be yes, but I hope I've managed to convince everyone else.

Furthermore, scalpers who wait in line for hours to buy tickets/game systems, and then flip it for profit are essentially providing a paid service to those who are too impatient, late, or otherwise incapable of buying said items when they go on sale, knowing that there is a limited supply that will not meet all the demand.

There are plenty of people who were willing to buy it for the initial price instead of the inflated amount.

The problem here is that you are using the broken window fallacy. Just because someone artificially jacked up the "demand" of an item doesn't mean that the item is really worth more.

Take for example the recent housing bubble. People scalping houses forced the legitimate buyers to take out huge mortgages that they eventually couldn't pay off. If you think there was value added there, I don't know what will convince you.

House scalpers didn't force legitimate buyers to take out huge mortgages. The "legitimate buyers" (I assume you mean people who wish to consume housing) could have continued to rent.

Most of the people who bought houses are also scalpers; they bought a house in the hopes that it would be worth more later. "Real estate never goes down!"

"House scalpers didn't force legitimate buyers to take out huge mortgages. The "legitimate buyers" (I assume you mean people who wish to consume housing) could have continued to rent."

The cost of renting went up along with the boom and unsurprisingly went down with the bust. Everyone was forced to pay more except for those who already owned a home.

Where do you think the leasers got their homes? Do you think that they wouldn't raise their prices when other options were priced much higher?

"Most of the people who bought houses are also scalpers; they bought a house in the hopes that it would be worth more later. "Real estate never goes down!""

Hindsight is 20/20. During those economic conditions, you could either rent overpriced accommodations, or you could take out a mortgage with a lower % interest than how much homes were appreciating yearly. This was a ponzi scheme where the timing of the bubble was controlled by the financial giants' tolerance for risk.

If you did not join in this fiasco, you risked losing purchasing power compared to everyone else. This is equivalent to you putting your money in a 0% interest account while everyone else puts it in a 5% interest account. I am willing to bet that the majority of the people here did not know when the bubble was going to burst, including most of you who are now saying that "those dumb speculators shouldn't have bought a home back then" (see how this is bad for liquidity if you can't buy a home for 3-4 years?).

Scalping is also theoretically bad for the market. The market is not optimal when buyers are paying the maximum amount. In such a condition, you have decreased liquidity as buyers are forced to buy less since everything costs most of their money. You might just buy food and shelter, and try to be self sufficient on everything else. This is not conducive to a vibrant economy.

The market is optimal when sellers are selling at their minimum amount. The ideal market thrives on competition. Liquidity is increased and you have incentives to use the extra money to drive other sectors of the industry.

Take for example text messaging. It doesn't even cost 10 cents per message, and people would even pay 20 cents per message. But does that mean a text message is truly worth that much? Absolutely not! The phone company has lost that much interest into improving their existing services rather than trying to extract as much as they can from their consumers. Artificial scarcity only helps businesses/scalpers take advantage of the consumers.

The cost of renting did not go up correspondingly with cost to own. That's how we know it was a bubble.

http://bigpicture.typepad.com/photos/uncategorized/2008/05/1...

If you did not join in this fiasco, you risked losing purchasing power compared to everyone else. This is equivalent to you putting your money in a 0% interest account while everyone else puts it in a 5% interest account.

Yes, I would have lost if housing turned out to be a good investment. This does not change the fact that your "legitimate buyers" were speculating.

Also, if you are comparing scalping to text message prices, that analogy would only make sense if a single scalper (or a small number of scalpers) holds a monopoly over the market (either in tickets or houses). That's obviously wrong.

Ok here we go.

First of all, just because the ratio went up doesn't mean that rentals didn't go up as well.

Second, what are the units are that graph? 25? That's definately not 25x unless you've normalized it to the 1900s or so which is silly. That graph has an exaggerated axis.

Third, the metric for price-rent ratio is rather arbitrary. How is a rental for 12 months ever equal to the cost of a house? A house is not entirely equivalent to an apartment to be compared in this manner, and the number of houses for rent is inversely related to the market price.

Yes, I would have lost if housing turned out to be a good investment. This does not change the fact that your "legitimate buyers" were speculating.

The point is the people who were scalping first forced an artificial panic on the system. If they did not have the power to do this, people wouldn't have been highly compelled to follow them. Therefore scalpers are bad for the market. This is equivalent to a "pump and dump" scheme which is illegal when trading equities.

Also, if you are comparing scalping to text message prices, that analogy would only make sense if a single scalper (or a small number of scalpers) holds a monopoly over the market (either in tickets or houses). That's obviously wrong.

No you are completely missing the point. Scalpers have at least a regional monopoly. Is text messaging a regional monopoly? Yes. Did housing speculators buy up whole plots of real estate in certain areas? Yes. Did wii buyers hold a monopoly on wiis when they bought out the limited supply in stores and put them up on ebay? Yes. That's the entire point of scalping, to create an artificial lack of demand through a monopoly.

  The only winner here is the scalper though.

Even if true, we only say that after the fact when all the risk in the trade is gone and the profits banked. The trade could have gone badly and wasted the scalpers' time and money.

If I remember correctly, there WAS a console flip fiasco in Boston (PS3 I think), where the scalpers who waited in line all night didn't wind up profiting.

Edit: first link I found, probably many others... (http://kotaku.com/gaming/ps3/some-scalpers-give-up-return-ps...)

The problem with that assumption is that everyone already knew that consoles were being sold below cost and the scalpers knew they were in high demand.

In the example you just pointed out, Sony just lost market share from that because the scalpers took those consoles away from legitimate gamers who may have even switched to the wii or xbox.

And since we all know that the profit is mostly from the games, not the console, this was a lose/lose situation for Sony, the consumer, and in this case, the scalper.

The customer who wants to be among the first to get the console but doesn't want to wait in line is also a winner.

You have to think of the value people assign to their time. The console flipper simply converts the price of the console from ($300 + 10 hours) to ($500). Think of it as the ultimate owner hiring the person to wait in line for $20/hr.

scalper can buy all the tickets to a popular game and sell them all at 10x the price

How is this a problem, especially one requiring regulation? Nothing has changed from your original formulation, except apparently that he's now making 'too much money.'

Because then the very wealthy scalper has a monopoly, and the monopoly power allows for profit-maximizing pricing, which causes dead-weight loss.

It's better the scalper sell 50% of the tickets at 10x (and let 50% rot) than all of the tickets at 2x (and have nothing rot).

The scalper will let some tickets rot to preserve the 10x pricing because this is a repeated game. If people know that he'd rather let tickets rot than lower prices at the last moment, they'll have no choice but to buy at 10x or miss the game.

But there's already a natural monopoly on tickets isn't there? You can only buy them from the venue that the show is taking place at. Surely if they see that the market will bear 10x the price they're asking, they'll just raise the face value price on the ticket. This would make it unprofitable for the scalper to buy them all and resell them, since he could no longer ask 10x the price.

Scalpers often have the time, money and incentive to build automated systems which hammer ticket services to buy up tickets which otherwise would have been sold directly to people attending an event. Whenever you hear about a concert or sporting event selling out within a ridiculously short period of time (sometimes 30 seconds after online sales open), it's because of this, and represents the creation of inefficiency rather than the remedying of it.

Also, first-party ticket vendors have been known to actively partner with third-party resellers to essentially eliminate the original market. Ticketmaster, for example, owns an online scalping service (TicketsNow) and there have been repeated allegations that they give preferential treatment to their own scalping subsidiary.

    represents the creation of inefficiency rather than the remedying of it.

I can't think of a situation where scalpers are not contributing to efficiency. I think you've focussed on intentions of particular parties in the scenarios rather than the net market and that this has taken you to an incorrect conclusion.

With scalpers, the venue venue has their risk removed (they lock in their sales early), and the scalpers increase liquidity by removing the venue's monopoly power over pricing the event. And price discover is better.

Now either the consumers are able to buy the tickets from the scalpers in a competitive market (and often with increased convenience), or the scalper can destroy the tickets and nobody can turn up the the event. They generally won't - that's irrational. Even if they did - it's not an ineficiency for the purpose of the original marketplace. In fact, it creates opportunity for extra production: the venue can arrange a late-entry-for-unfilled-spot policy which allows them to get people in and sell some tickets twice.

Or the venue can detect scalpers and create a dynamic price market of their own and maximise their volumes.

In the situation where multiple scalpers get the tickets and plan to sell them, there has been a massive gain in efficiency. The scalpers have removed the venue's monopoly power over ticket prices and created a second market place which will have more effective price discovery.

Either way, the event provider is focussing on what they're good at, and the scalpers at what they're good at.

Scalping is entreprenerial in spirit and good for the system in practice.

The ticket seller might want a specific audience for demographic reasons, and or a sellout crowd for reputation reasons. Scalpers destroy this without giving a kickback to the ticket seller. They also increase the cost to the ticket buyers thus reducing market efficiency.

> The ticket seller might want

But that's unrelated to market efficiency. People in this thread are trying to define "seller not getting what they want" or "particular type of consumer not getting what they want" into market inefficiency, and it doesn't work like that.

I'm not an economist. Perhaps I'm wrong, but in this case please make the case in terms of a definition you can cite.

(In practical terms, they seller could reach that aim by giving people a cashback at a random time during the event for those who turned up - for example swapping a single ticket for a cashback at the end of the show as people were leaving the gates. The reason venues don't like scalpers is that they don't like price discovery because of reasons like these: (1) they want to be able to make a killing on late tickets, even if it's only for a few events per year and (2) they want to be able to sell tickets to poor people through some mechanisms at one price, and tickets to richer people through different mechanisms at another price, such as through coupon clipping or discount books or through ticket offices in poor areas, (3) they don't want tickets won through competitions being given away. That way they get to charge wealthier people a higher price than time-rich people who are typically poorer. That's inefficiency.)

Transactions can involve more than just a single flow of cash in exchange for stuff. Economists can and do look at satisfaction as part of market efficiency which explains why people pay for status symbols. Someone buying a diamond for above resale price is not necessarily simply wasting money for zero gain.

PS: Consider rather than a ticket scalper you had a group of bandits charging a toll to cross a bridge. They are not adding value to the experience of crossing a bridge and they are not helping the people who made the bride. So while arguably they increase GDP it's not a net gain for society.

The bridge crossing example doesn't contain a factor equivalent to the risk that the scalpers take on when they buy the tickets, or the fee they pay to the people running the event.

I can't think of a situation where scalpers are not contributing to efficiency.

If scalpers are able to buy out an event in a matter of seconds/minutes after tickets go on sale, they will manage to artificially inflate the price for tickets (since the only way to get tickets will then be to pay the scalpers' prices). In effect, they will have decided that the natural supply/demand situation is unsuitable to them and manipulated the market to create an artificial scarcity. While this is to their own advantage, it is not efficient with respect to the ticket market.

Price discovery is not 'artificial inflation' - it contributes to efficiency.

    In effect, they will have decided that the natural
    supply/demand situation is unsuitable to them and
    manipulated the market to create an artificial scarcity.

No - the situation where artificial scarcity occurs is where people who buy the tickets are prevented from onselling them. In this case the venue has an advantage that contributes to economic inefficiency.

The interests of the ticket maker and the efficiency of the economy are separate considerations.

Even in the situation where one scalper gets all the tickets, if they sell them to people who are themselves then free to onsell them then even this creates a more efficient market than what you have when the venue has a monopoly over the direction of transactions.

I always thought it was strange that event venues were able to coax legislators into introducing anti-scalping legislation. It's only now I see the arguments being brought against scalpers that I appreciate the murkiness of the issue when pitched from certain perspectives.

In this case the venue has an advantage that contributes to economic inefficiency.

The same total sum of goods and services is available with scalpers buying up the supply, but those goods and services are now provided at higher total cost than otherwise. This is, so far as I'm aware, the definition of inefficiency and consists solely of artificial inflation of prices.

OK, thanks. I see that now. In the scenario discussed above in the thread this is the case. This provides an example of where scalpers have a negative effect on the market, something I indicated I couldn't see earlier.

Although this isn't the universal case, because scalpers can compete against the hosue at a later point in the market, and offset attempts by the house to segment the market, and can lose out at times causing sale at a loss to themselves.

Can't edit my orig post anymore:

http://en.wikipedia.org/wiki/Deadweight_loss

Deadweight loss from monopoly pricing power.