This past week I was in an argument with friends about how well the theories of economics apply to underground trade, such as the resale of concert tickets, text books, and other goods and services traded without the government's knowledge. Most people seemed to think that in the unregulated world of underground trade economics couldn't predict anything about how the market would shift. My immediate response was “of course economics deals with underground trade. Economically speaking, underground trade is one of the few perfect markets remaining!”
The lack of regulation creates a perfect medium for the equilibrium of supply and demand of products to take place. Every scalper that walks around the Nationwide Arena is out for his own profit. Of course every one wants to make as much as possible, while people without tickets want to pay as little as possible. This leads to haggling and shopping around for the best price available. With no government regulations on the cost of scalped tickets, other than its questionable legality, the constant competition between suppliers and consumers keeps the price in check. In addition, if Ticketmaster has sold out for a show it is likely that the price of scalped tickets will be expensive and vice versa. Therefore the underground market is the final pure frontier for pure economics.
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As a current employee of the Ohio State Athletic Ticket Office I deal with scalpers almost daily and monitor their effect on ticket prices for customers. Ticket scalpers obviously pose problems by purchasing tickets to eventually raise prices on other individuals. However, those who are extremely interested in the event and have a more willingness to pay might find scalpers beneficial. Scalpers do help create an open market and essentially make a bidding war as prices fluctuate based on the supply of the tickets remaining and demand of those looking to purchase tickets. However, it frustrating selling someone a ticket knowing they will eventually sell the ticket for an increased price. Therefore, the ticket office will often set a limit of how many tickets a single person may purchase. This policy is designed to decreased the amount of scalped tickets, but it does have negative effects for those who are really looking to purchase more than the allotted amount and actually use these tickets.
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