Price ceilings on secondary ticket markets are less prevalent today than they once were, but eight states still have them. Arkansas, Kentucky, Louisiana, Massachusetts, Michigan, and Rhode Island have price ceilings on reselling tickets to all entertainment events, while Mississippi and New Mexico have them on collegiate games only. But some states are considering re-imposing the bans. For example, the New York legislature must reconsider the desirability of price ceilings because of a sunset provision in its repeal law, one that requires the legislature to endorse the repeal or face having it automatically reinstated.
Debates over repealing (or re-imposing) these price ceilings center on the effect that repeal has had on the price of tickets in secondary markets. During the debate over New York’s repeal legislation, opponents predicted that it would cause prices to “skyrocket.” Proponents disagreed, predicting that prices would change very little or even decrease.
If price ceilings are set below equilibrium prices and are enforced, then repealing them ought to cause prices to rise. However, if they are not enforced because most trades occur out of the reach of state authorities, then repealing them could cause prices on secondary markets to increase, decrease, or stay the same. The last case is the easiest — if buyers and sellers ignore price ceilings because they are unenforceable, then repealing them should have no effect on prices at all.
Repealing price ceilings that are not being enforced will only change prices if they affect the behavior of buyers or sellers in some way. For example, repealing them might increase prices if sellers are using price ceilings as focal points in setting their prices. Alternatively, repealing them might be viewed by potential sellers as conferring legitimacy on secondary markets, inducing them to increase the supply of tickets. Indeed, the repeal legislation in New York included a provision that prohibited sports teams from restricting “by any means the resale of any tickets” bought as part of season ticket packages. Prior to the law, many sports fans believed that they might lose their season ticket privileges if they were caught selling tickets online. Advocates also argued that repealing the price ceiling would further move reselling from the shadowy world of scalpers to the more transparent one of the Internet, increasing the intensity of competition and leading to lower ticket prices.
The effect of repealing price ceilings is an empirical issue, one that cannot be resolved by the application of economic theory alone. In this article, I estimate how the repeal of price ceilings by Minnesota, Missouri, New York, and Pennsylvania affected the prices and quantities of National Hockey League tickets exchanged on Stubhub, which is the leading online marketplace for reselling tickets. I chose professional hockey for three reasons: First, I wanted to focus on some sort of entertainment event — concerts, plays, or games — that occurred both before and after the states repealed their price ceilings. Professional hockey games were attractive because Minnesota, Missouri, New York, and Pennsylvania repealed their price ceilings between the 2006-07 and 2007-08 NHL seasons. Second, I wanted to choose entertainment events that allowed me to compare changes in ticket prices (and quantities) in repeal states with those occurring in states that did not change their laws. Professional hockey scored again because there are seven professional hockey teams in repeal states and 15 in states that did not change their laws over the three seasons that I examined. Finally, I wanted to choose a type of entertainment event for which the criteria of selection into the sample would be obvious, such as all of the American teams of the NHL. This should reassure readers that the results are not being driven by the selection of the sample, i.e., that I did not cook the books by cherry-picking the sample.
My empirical strategy worked well, demonstrating that repealing the price ceilings had only a small effect on the resale price of upper bowl tickets, while substantially increasing the supply of premium tickets (i.e., in the lower bowl of the arena) to secondary markets.
New York’s Report on Ticket Reselling
I began this research shortly after the New York Department of State released its own study of the effect of repealing its price ceiling on ticket prices. New York first imposed a price ceiling on secondary ticket sales in 1922 when Abie’s Irish Rose was the hottest play on Broadway, and repealed it on June 1, 2007 when tickets to Jersey Boys were hard to find. Prior to the repeal, resellers of Jersey Boys tickets were prohibited from charging more than 20 percent over the face value of the ticket. Resellers of tickets to larger events — ones in arenas of more than 6,000 seats — could charge up to 45 percent over face value. After June 1, 2007, the price ceilings were gone, but perhaps only temporarily because of a sunset provision in the law.
The sunset provision originally imposed a deadline of June 1, 2009 for the New York legislature to either endorse the repeal or have the price ceiling automatically re-imposed. On the eve of that deadline, the legislature extended it by a year and ordered the secretary of state to conduct a study of the effects of repealing the price ceiling on the availability and price of tickets. Lawmakers’ directions were explicit, asking for a “comparison of the availability and cost of tickets in [New York] with that of other states where price caps in the secondary market are in effect.”
The resulting report relies on data about the price and availability of tickets for 15 concerts and four shows occurring in 2009 and 2010. Eight of the events occurred in New York and 11 occurred in New Jersey, Georgia, Massachusetts, or Rhode Island, all of which the report categorizes as having price ceilings on secondary ticket sales. The data were collected by visiting the websites of each event’s venue (or its agent) and a handful of online marketplaces for reselling tickets. The report concludes that there is “no conclusive evidence” that price ceilings affect prices in the primary market (i.e., original buyers and sellers) or the secondary market, because “in some instances, tickets were priced higher in New York and in others, less.”
The total number of tickets sold in the secondary market increased in both groups, but repeal states experienced a larger increase.
The report does not present any regressions, so its evidence is not controlling for other factors that might determine prices. The authors do not even present any descriptive statistics because they do not have enough data to create meaningful averages. Their data are incredibly weak, lacking the statistical power to meaningfully test hypotheses about whether (and how) price ceilings affect primary and secondary ticket markets. To their credit, the authors recognize how weak their data are, stating that their analysis “was hampered by [their] inability to compel any segment of the industry to produce valuable ticket sales and availability information on either the primary or secondary markets.”
The analysis was hampered by more than a lack of data. The empirical strategy dictated by the state legislature was inherently flawed, being a cross-sectional comparison of ticket prices in the single state of New York with those in some states that they interpreted as still having price ceilings on secondary markets. The empirical strategy adopted in this article is more ambitious, being designed to have more than one state in the treatment group and to look at changes in secondary ticket markets over time. Fortunately, I also have access to better data than the researchers at New York’s Department of State.
A First Look at the Stubhub Data
Stubhub gave me data on its sales of NHL tickets for three seasons (2006–07, 2007–2008, and 2008-09), one of which was before Minnesota, Missouri, Pennsylvania, and New York repealed their price ceilings and two of which were after the repeals. The data were aggregated by sections of the hockey arenas and only incorporate confirmed transactions, omitting listings that were not sold.
For the Anaheim Ducks, for example, Stubhub gave me the quantity of tickets sold and the total amount paid for seats in the “Plaza Main” section of the lower bowl of the Honda Center for each of the three seasons. While the Ducks carve up their lower bowl into six pricing categories (i.e., sections), the Philadelphia Flyers have only two lower-bowl pricing categories, called “ice row” and “lower level.” This makes comparisons across teams difficult. Hence, I further aggregated the data into upper and lower bowl seats, creating variables on the annual sales and average prices of lower and upper bowl seats for each team for each season.
My sample excludes the Carolina Hurricanes, New Jersey Devils, and the six Canadian NHL teams. I excluded the Canadian teams because they are in a league of their own economically and because they are under a different legal system, one that is harder to interpret. I excluded the two U.S. teams because New Jersey and North Carolina repealed their price ceilings on reselling tickets over the Internet in the summer of 2008, a year after Minnesota, Missouri, Pennsylvania, and New York repealed theirs. Hence, my sample is composed of 22 NHL teams, seven of which are in the repeal group, being located in Minnesota, Missouri, Pennsylvania, or New York, and 15 of which are in the control group, being located in states that did not change their laws over the years of the sample. The states that did not change their laws (and have an NHL team) are Arizona, California, Colorado, Florida, Georgia, Illinois, Massachusetts, Michigan, Ohio, Tennessee, Texas, and Washington, DC.
The graphs tell the story Figure 1 illustrates the trends in the quantities of lower bowl seats traded on Stubhub over the three seasons I examined. To simplify interpretation, I measured quantity using an index, with “1” equaling the average number of lower bowl seats sold on the secondary market in 2006–2007 for Control Group teams. In that same season, the index for Treatment Group teams was 1.78, meaning that nearly twice as many seats of Treatment Group teams were sold on Stubhub.
The top line shows the trend for the seven NHL teams located within states that repealed their price ceilings; the bottom line shows the trend for the other 15 American teams. The total number of tickets sold in the secondary market increased over the time period examined for both control and repeal group teams, but repeal states experienced a larger increase, suggesting that repealing the price ceilings had a substantial and persistent effect on the quantity of lower bowl tickets sold in the secondary market. To estimate the magnitude of the effect, I drew the dashed line, which illustrates how the quantity of tickets sold in the repeal states would have grown had they increased exactly like that in the control states. Hence, my best guess is that sales in the repeal states would have grown to point NR had Minnesota, Missouri, New York, and Pennsylvania not repealed their laws. This implies that repealing the price ceilings increased the quantity of lower bowl tickets traded by 33.6 percent, which is measured by the vertical distance between NR and R. I interpret this as being clearly beneficial for hockey fans in those states, as they obtained more of the tickets that they wanted.
Figure 2 illustrates the trends in the prices of lower bowl seats traded on Stubhub. While the average price of lower bowl seats for games in repeal states increased in the first season following repeal relative to the control states, the difference did not persist over time. As in Figure 1, I drew a dashed line in Figure 2 to trace the path that ticket prices in the repeal states would have followed if they had taken the same course as in the control states. Hence, it appears that repealing the price ceilings did not have much of an effect on the resale price of lower bowl seats.
The empirical evidence summarized in Figures 1 and 2 suggests that repealing price ceilings caused an increase in the supply of lower bowl tickets without having much of a sustained impact on price. It could be that the price ceilings were not binding and the demand for lower bowl tickets is very elastic. Alternatively, any upward pressure on price due to repealing the ceilings may have been offset by an increase in supply.
Repealing the price ceilings appears to have helped fill the seats of the lower bowl of hockey arenas. With a legal ceiling on prices, the owners of “choice seats” in the lower bowl may have chosen to leave them empty on days they could not go to games rather than sell them. They may have felt that the price they could get legally was not worth the hassle. Or they might have worried that the team would penalize them in some way, confiscating their tickets or revoking their right to buy them in the future — a fear that many teams had been promoting. Also, the publicity about the repeal of the price ceiling on secondary ticket sales could have induced some season ticket holders to experiment with reselling their tickets.