Is ticket touting wrong? Why? Is there a better way of deciding ticket pricing?

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Hello and welcome to the Cognitive Engineering Podcast, where we look at interesting topics and discuss what we think they tell us about analysis and decision making. I'm Fraser McGruer and I'm here with Peter Coghill and Nick Hare of Aleph Insights, and this week we're discussing ticket touting. Okay, so Peter, is there a problem with ticket touting?

So yes, I was thinking about an article I read recently, and obviously there's a lot of interest, what with there being some sort of big football tournament on at the moment, about tickets and the resale of tickets at the event or close to the event, and the huge markup you get on ticketed events. But this article was interesting, citing a lesser talked about problem with ticketing, especially for things like football matches, where you have often a lot of latent disrespect for another side, a safety argument that if you buy a ticket on the gate for a football match, you're not guaranteed that you're going to be seated amongst your peer, your fellow supporters, you may be stuck in the middle of the opposition's stands. And this can obviously lead to problems. So I thought that was an interesting dimension. But I think the wider question about ticket touting is, well, what's the moral standing of seeming to make a profit on developing an industry, making a profit off the back of something that's just trying to provide a service to people, just trying to sell something to people. It's just free market economics. Yeah, so I'll hand over to Nick to discuss the economics of it all. But if you could, if that didn't exist, then well, potentially the ticket seller could have a higher price or the tickets, is there a better way of finding out the true value of a ticket than through touts? So yeah, what's what is the problem with, with ticket touting?

Yeah, Nick, so I guess same question to you. What is the problem with ticket touting?

The economics of it is fairly straightforward. I mean, it is, as Peter says, doing a service, which is distributing tickets from people who value them less to people who value them more. I mean, that is efficiency, right? So if we can't do ticket resales, and you have a ticket that you'd be willing to sell for £20, and I'd be willing to pay £50 for it, we are both worse off, right? Because you would rather have, say, £40 than the ticket, and I would rather have the ticket than £50, certainly rather than have the ticket than £40. And so, you know, you could sell that to me. That's the essence of, you know, trade is ultimately where almost all economic value comes from, from people who value things less to people who value them more. That's pure, that is pure economic gain. Now, so the puzzle is actually not why touts exist, because it's quite easy to explain why touts exist. The puzzle is why performers and people who put on events sell tickets for much less than they could. That's the real puzzle. Forget about touts. You make them illegal if you want, whatever. The point is that why are people essentially rationing tickets rather than selling them for their true value?

Well, hold on. So, first of all, with touts, it's not just a question of I happen to have a ticket and do you know what, I can't go mate, you know, I'll sell a few and sort of mark up or something like that, is that one of the things that touts do with events that are known to probably be in demand is they'll buy, you know, hundreds of tickets and with no intention.

Yeah, but they wouldn't be, if they were paying, if they were buying those tickets at the market value, they wouldn't be making a profit. The fact that those tickets are being sold below their market value is the problem here. That's why touts are able to make money.

Sure. But is there a question, so is the question then, is this a question of how value is defined then?

No. Well, sort of. I mean, but value is straightforward here. I mean, a ticket is worth what someone will pay for it. Very, very simple. And the box offices, the ticket masters are selling it for less. I say defining, knowing the value. They're selling it for less than what people will pay for it. And as a result, they run out. And people who had money they would be willing to spend are unable to spend that money on a ticket because it is literally rationed. I mean, it's, you know, there are 10,000 people who'd be willing to pay that price, but only one in 10 of them can get a ticket. So they're rationed, it's like a lottery system.

So two things that go somewhere to explain it. So one is you don't know how much that ticket is worth until that event, until the minute of that event, then you know, then the market will tell you what that true value of that ticket is. But an event organizer has probably organized many events. And if they if they're able to get data about what ticket towns are selling those tickets for, then they can take part in it. Yeah, you should they should know it's a lot higher than what they're selling it for. They know it's a lot higher than what they're selling it for. I think what it comes down to is they deliberately undersell the ticket. And to to to so they don't they are then not criticized for for being unfair for pricing out true fans who can't afford the true value of a ticket. So while at the same time complaining that it's not fair that they can't sell the ticket at a higher price, they're choosing to do that because they don't want to be seen to be pricing people out who there's about that 50 pounds cinema that 50 pounds cost ticket. That's a big investment for some people. Actually, on the game in my end up being 300 pounds. They could easily charge 200 pounds, but they don't because they don't want to put off the fan base. And they don't as a performer, they don't want to be seen to be elitist. So they're choosing to put this seller to the much lower cost.

Yeah, let's assume they're working in they're acting in good faith as well. I mean, because they don't financially benefit from from the touts.

No, they don't. Yeah. But they think but they could sell that ticket at 200 quid. Yeah. And make three times, make four times as much as they do sell it for.

Like like Donald Trump's inauguration. It was massive. So what was that? Donald Trump's inauguration. It was it was throbbing.

Yeah, well, there was there's some controversy about that. It's fair to say. But look, anyway, so that's one theory. There's also the theory that actually box offices have sort of benefit from from the existence of touts and they have a kind of a slightly different profit function. In the sense that a box office cannot be bothered to find out exactly how much you'd pay. They just can't be bothered. They'd rather just sell tickets and not put any effort whatsoever into acquiring that information. Whereas touts are willing to do that. They've got lower costs, if you like, that you know, they don't have to print the tickets and all that stuff. So they can spend time talking to people and standing on the gates and finding out. So there is there is the argument that actually those tickets are worth less. They're worth more to a tout than they are to a box office because the box offices don't really don't know how much you're willing to pay.

And the box office is going to turn a profit. It's not like they're in danger of going out of business.

Right, exactly. I mean, at the point that someone is going to put on a show, any sales is profit.

Let's sort of, I want to pose a question. So I want to set the Aleph minds to this task. So let's say you wanted...

You're not diverting it, are you? No, absolutely not.

Go on. Let's say you wanted to design a ticketing system that was optimal in terms of revenue. What would be your system first?

Optimal in terms of revenue or profit? I mean, I don't know. Well, they're probably the same. Let's say you've got a fixed, if you've got a fixed size...

That was going to make you most... Anyway.

Okay. If the show, if new, if people don't cost anything, if sales are pure profit, then it's the same as profit. So yeah, fine. Yeah, go on.

Let's say you wanted a system that benefited, that made money, that had good revenue or good profit, I don't know, but also allowed fans with not much money to go to an in-demand event. That system, what would be...

You just described two completely opposing things. Yeah. It's like saying, well, if you wanted to paint your house yellow, but also red, you can't have... But... You can't have... Hold on, hold on.

Yeah. Okay. So let's say in the latter system, you had a tiered system, let's say, or no, or like, like affordable housing.

You want a purely, you want a purely market driven means tested system. I'm sure the economists will say that I can't work.

I didn't say it. I wanted to, I wanted to make some money, but I want some people to, right? I mean, isn't that what happens in affordable housing?

No, that's what you're describing is what is actually happening, right? So if we wanted to do that... No, because... We'd probably come up with this.

No, because in the current system, lots of money flows away from the venue, away from the artist.

This is why they're trying to make sure that only people who have the ID can use the ticket that is sold to them. That's one way of doing it, right? If you wanted to, if you wanted to, you know... But again, you're rationing. I mean, you've got no real way of checking that only real fans are doing it. But I think one way of thinking about it is actually by putting hurdles in front of the ability to acquire a ticket, requiring people to do unnatural things like being up at six in the morning when the phone lines open and being the first to get through. Someone who is only sort of likes that band and would be willing to fork out 500 quid because that means nothing to them. But a real cost to them would be having to get up in the morning and be phoning up and wasting their time to get the ticket they don't really care about. So actually you can see those sorts of systems as being a way of doing that.

But isn't that where... that doesn't remove the problem of having a tout though, who would be motivated to do the same.

Yeah. Well, I'm just saying it's a way of at least allocating tickets to... it's a way of finding out who the true fans are. Let's assume there is such a thing as a true fan. We can delve into that. But like people who might not be rich, but are really into a particular band and really want to go and see them. And the band depends on them, ultimately depends on its fan base and doesn't just want a bunch of rich people who've read about the band in the last week's NME and think, oh, they're cool.

So I would suggest a combination of two different approaches. So have you ever been to Wimbledon? No. So Wimbledon operates a lottery system. So you sign up and you get one sign up per person. There are ways of gaming that obviously, and there are ways of anti-gaming it. So you could make it so that you only get one application per address or something. And link to the register, link to some sort of register. But combine that with a bidding approach. So you get one sign up per person and you're willing to say how much you value having a ticket. So you put in your bid. So I'll say, I would like to go and see Katy Perry in London. And I say, that ticket to me...

She'll play tennis then?

She might play tennis, I don't know. But a ticket in London at the ATA on Airstate is worth... Fred Perry's daughter, right? Yeah. Runs in the family. Must be. Good one. That's not true in real life. But for the sake of this, it is. Now, I would apply some kind of weighting system to it. So just because you... Saying that that's worth £1,000 to me doesn't give you 10 times more chance of winning than someone who's got £100,000. It's more like double. It's a sort of log of the value that you say. What the hell is going on? Carry on. Everyone who signs up has got some chance of getting a ticket, even if you say, oh, it's worth 10p. So what chance? But your chance is weighted by how much you're willing to say it's worth to you.

Hang on. And you have to pay what your bid is, if you get it. Well, you may don't. If you don't, then you've got a serious revelation problem.

Yeah. Well, you may end up paying slightly less than what your bid was. But I think, yeah, for the sake of simplicity, we'll say this. You are committed. Once you've said that, you've signed a contract to say if you're selected, you pay that.

By the way, just for the record, I said, is there some kind of system?

I've got an ideal answer, though. I do have a system.

Okay, well, we'll come to you. But so far, I said, hey, could we do this? And you said, I bet an economist would say that's not possible. But you just described to me a system.

No, but this system could still probably be gamed. So you could obviously cheat and have lots of fake email accounts and sign up lots and lots of times.

Yeah, but it's putting further hurdles in place, right?

It's putting further hurdles in place. I think the key thing, though, is having exchangeable tickets in the same way that a blockchain-based currency is. But only one person can own a Bitcoin.

It's transferable. Have we ever done a podcast and not mentioned blockchain somewhere? But it always seems to come into it.

Peter's never had a conversation where he hasn't mentioned blockchain.

Yeah. Nick, you were talking about an optimal system.

Yeah, but Peter's described, I mean, you gave a couple of characteristics there of this system. And it had to not just maximize revenue, but it also had to somehow be fair to sort of, let's call them true fans. Peter's system is essentially an auction. That is the optimal solution here, right? You have a sealed bid auction. Everyone submits a bid. You pay the, probably the most efficient way of doing it would be you pay the bid of the next guy below you, which would be essentially a sort of equivalent of auctioning the tickets one by one. There's a theory about auctions, which is that actually it doesn't really matter what mechanism you use. You can expect to end up with the same revenue as long as people's bids are correlated with the amount they value in some way, the amount they value the thing. So yes, an auction system would get you the most money. There's no doubt about that. But your then Peter's system completely fails. It's totally neglected those true fans with not two pennies to rub together, because they just won't ever get tickets. And so it will go to the people who value it the most highly. There's no doubt about that. That's easy, though. Now it's better. It's still better. It's more efficient.

That's why I was applying a weighting function to higher bids. Twice the bid doesn't twice your chance of winning.

No, but the point is that if the people who are willing to pay the most, in whatever sense, are going to end up with the tickets.

Yeah, sorry, there's a missing part. So the selection of who wins is not just driven by the pure cost. There's also a rather stochastic element to it. So you'll get 10% of the lowest bid bracket, 10% of the highest bid bracket.

Essentially, what you're paying for is, let's say auction winning chances. So you're and there's a there's a nonlinear function converting the pounds you're willing to stump up with your chances of winning. But the point is that it still is going to, you know, it's, it's going to end up with the people who are willing to pay the most, getting most of the tickets. So I think

We're going to allocate half the tickets to, you know, people who just stick the name down. They're going to end up with tickets. And then we're going to, you know, there might be we're going to get 10,000 people sign up, but there's only 200 tickets available. But you'll get, you know, some people will get some, and then we'll have a separate pool of tickets, which are effectively auctioned off. And it doesn't, you know, it's, it's, there's no way of doing those two things that you want efficiently. I just I think it's worth saying, though, right, this thing about true fans is, I think it might be time to reach up to the cognitive engineering bookshelf again, and pull down that, that dusty tome about relational models theory. Because I think this is where this is sort of explains why it is that people get worked up about the idea that rich people should be able to, you know, to have all the tickets, right? People don't really like that. There's something about like going to see your favorite band, or your football team or whatever, people don't like the idea that it's just rich people who can afford to do it. Exactly. Like people who don't really care, but they discovered that, you know, Manchester United are popular this week. So they decided to buy themselves a, you know, so the and I think in the relational models theories, you have you have sort of a set of relationships you have, we talked about this before, but you know, you've got kind of equality matching where we all make sure we get the same stuff. You've got communal sharing, which is like a family where no one really keeps track of who's eating what or who's buying what, and you have market pricing, which is another, you know, a kind of the, you know, new issue approach. And communal, when we were talking about, I think, in the past restaurants, restaurants want to pretend that they're like a family, even though it's a market pricing relationship, you have them so they hide, they sort of hide the financial element, because it's kind of embarrassing. And, and I think this is the situation here that actually bands want to have a communal sharing relationship relationship with their fans. But selling tickets is very much a market pricing problem. And, and that is disruptive in the same way that it would be disruptive if you know, I asked you around for dinner and then asked you to cough up for the cost of the food.

I don't think it could be that much. I'd say less than 500, 400 to 500 pounds.

Yeah, I mean, you're both thereabouts. Actually, it's 500 quid. Okay. And that was kind of the going rate. And I bought it. So I bought a ticket for 500 quid. Probably about the worst. Probably about the worst 500 quid I've ever spent. Because the game was dismal. And also England lost. Okay, we'll stop there. Thank you, as always, for listening to the Cognitive Engineering Podcast. I'm Fraser McGruer. I've been here with Nick Hare, and Peter Coghill of Aleph Insights. Thanks, and until next time. Goodbye.