Policy Documents

Uncapping Ticket Markets

David E. Harrington –
October 1, 2010

Many opponents of repealing price ceilings on secondary ticket markets predicted that prices would “skyrocket” if the ceilings were repealed. This article tests their prediction using three seasons of data on the sale of tickets to National Hockey League games that were traded on the Stubhub website. The evidence is clear: resale prices to nhl hockey games did not skyrocket in states that repealed price ceilings compared to states that did not change their pricing laws. Indeed, the evidence implies that repealing price ceilings on secondary ticket sales had no persistent effect on the resale price of lower bowl seats to nhl games and no more than a small effect on the resale price of upper bowl seats.

The fact that repealing price ceilings did not increase resale prices should not be surprising for two reasons. First, the price ceilings are nearly impossible to enforce, given that trades are frequently made over the Internet, often on out-of state websites. Second, the price ceilings are often not binding because resale prices are frequently less than face value (or not enough above them to bump against the price ceiling), especially for the most expensive seats.

Even if price ceilings have little effect on prices, they still send a message about what society thinks is an appropriate resale price. What is the harm in that? The potential harm is that unenforced price ceilings create unnecessary costs and may have unintended effects. Agencies are assigned to enforce and monitor unenforceable price ceilings, using scarce resources that could be better spent elsewhere. More importantly, unenforceable price ceilings may have unintended effects, such as creating empty seats in the lower bowl of hockey arenas.

This article presents evidence that price ceilings on the secondary ticket market have a chilling effect on the supply of tickets to secondary markets. In particular, repealing them in Minnesota, Missouri, New York, and Pennsylvania was associated with a 36.6 to 44.4 percent increase in the number of lower bowl tickets traded on Stubhub for those teams’ home games. Many owners of premium tickets were reluctant to resell them while there were price ceilings on secondary ticket markets, perhaps because it increased the credibility of threats made by teams to punish season ticket holders who resold some of their tickets.

State governments can send a powerful message by imposing unenforceable price ceilings, one that says that society thinks that some prices are excessive. However, this message can easily be misinterpreted as saying that there is something suspect or even sleazy about reselling tickets in the secondary market regardless of the price. Repealing price ceilings sends an equally powerful message, one that says it is acceptable to resell your tickets in secondary markets.

Then-governor Eliot Spitzer emphasized this message when he signed New York’s repeal law, saying, “I think permitting a free market to work its magic [in the secondary market] is the smart approach.” In the case of nhl tickets, permitting the secondary market to work its magic increased the supply of lower bowl tickets by roughly 40 percent, filling formerly empty seats.