Check out the prices on Stub Hub for tickets to the upcoming Big10 basketball game between the Iowa Hawkeyes and the Wisconsin Badgers.  Quite a few of them are significantly below the $24 face value of the tickets.  This can happen because fans who buy season tickets for Badgers basketball are buying for the games against the conference powerhouses.  For the games against cellar dwellers like Iowa they dump their tickets on the secondary market at whatever price they will fetch.

Coping with scalpers who buy tickets through the box office and resell them at inflated prices is one thing.  You could have raised prices yourself but you chose not to.   But what do you do when scalpers are undercutting your box office price?

You should buy the tickets back from the scalpers is what you should do.  The fans who are going to buy from the scalper at the low price might also be willing to buy at box office prices.  If you buy the cheap tickets on StubHub first then the box office is the only option left for them.  And if they do buy from the box office you have made a profit because you bought low and sold high.

But there’s a chance those fans aren’t willing to pay box office prices and in that case you’re just losing money.  So there’s a tradeoff.  It means that you don’t want to buy secondary market tickets at prices just below your box office price but you definitely do want to buy the tickets priced so low that they are worth the risk.  Indeed there is some optimal offer price that you should be prepared to repurchase tickets at.

In fact every venue’s box office should be both a buyer and seller of tickets with an optimally calculated spread between bid and ask prices.

Now you might wonder whether this only further encourages season ticket holders to dump their unwanted tickets. Indeed it does but that’s exactly what you want them to do.  The tickets will be reallocated more efficiently and you will capture the gains from trade.  Moreover, fans are now willing to pay higher prices for season tickets if they know they can easily resell their unwanted tickets.  You can then raise season ticket prices to capture those gains.

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