Greetings,
I'd like to present a theory on value; let me know what you think. I'll call it "Zach's Theory of Value"; someone else has most likely come up with it first, and as soon as someone points out who it was, I'll gladly note that in this topic. As far as I know, the work is original, but who knows-- I might have heard it in passing one day and forgot my source.
I argue that all value is subjective, and most value is subjectively relative. Let's stay with the simple, primary element for now, subjectively relative value. Rather than give a definitional or axiomatic argument, I'll argue by example.
Say that there are two parties: Band X and the Groupie. For now, assume that Band X directly sells the tickets; while in actuality the process is much more complex, the complexity can be accounted for by this system. For Band X, a ticket is worth, say, $30; considering their time and their investment(s), that's about the price point per ticket where it's worthwhile to them to have the concert. For the Groupie, a ticket is worth $75; they love Band X, and it's absolutely worth 10 hours of work to go hear the band. If Band X sells the ticket for $50, Band X gains $20 in subjective value (they sold a $30 ticket for $50), while the Groupie gained $25 in subjective value (they acquired a $75 ticket for $50).
Say that a ticket scalper decides to get in the fray. He purchases all the tickets from Band X for $50; thus, Band X acquires $20 in subjective value (they sold a $30 ticket for $50). The ticket scalper then sells the tickets to Groupies, for whom the tickets are worth $75, at $60 a pop. The ticket scalper gains subjective value (they sold a ticket that they paid $50 for at a $60 price point), and the Groupies gain subjective value (they gain a ticket that's worth $75 to them for $60).
I'm arguing that mutually beneficial voluntary free market transactions, such as the ones I described, generally result in the net creation of subjective value. The first transaction, without the ticket scalper, netted $45 of subjective value-- $25 for the Groupie and $20 for the Band. The second transaction, with the ticket scalper, netted $45 in value as well-- $20 for the Band, $10 for the Scalper, and $15 for the Groupie.
Therefore, transactions are capable of generating subjective value. Adding middlemen to the mix, such as ticket scalpers, redistributes that subjective value, but it does not actually decrease the subjective value generated.
There's all sorts of fun implications from this argument, and several places where we could go, but I'd like to start with that, and perhaps go further if there's interest in the issue. Thoughts?
Wednesday, October 7, 2009
Zach on Value: A Justification of Ticket Scalpers
Posted by Zach Sherwin at 4:31 PM
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8 comments:
I'm not sure why this is a defense of scalping. I would think that it shows that scalpers are parasites because they are taking away some of the value that the consumer derives from the purchase of the ticket without adding any value through their activity.
To respectfully disagree, why should scalpers be condemned as “parasites” for wanting to make money? They are not insidiously merely robbing the customer or society of value in an unfair way but demanding a fair price for a service provided, as any businessman would. Surely you wouldn’t call all businesses that outsource “parasites” as well, though they act as the middlemen and derive profit from services or products that are sold for more than their actual value; that’s what businesses do. Scalpers are just as entitled as the other consumers to do as they wish with their purchased goods – sell the tickets if they wish, use them, give them away, frame them on a wall, rip them up and burn them, use them as bookmarks, whatever. As long as there is no Grand Monopoly of Scalping, no unionized band of scalpers in a cohort to agree to sell all tickets at an equally high rate, the invisible hand of the laissez-faire market, capitalism and competition, or whatever description you prefer, will keep prices relatively low and fair for the consumers. Scalpers are profit-seekers along with the rest of us.
I'm OK with Andrea's libertarian argument. I was objecting to Zach's utilitarian defense of scalping. I don't see how he has justified scalping with the example he used.
Seems appropriate that I'll be taking a break from working on an Entrepreneurship midterm to comment. ;-)
Dr. Papazian, I believe this is a defense of scalping for several reasons. First, I assume that the value of an economic transaction can be economically (not morally or whatnot) understood in terms of the net subjective value it generates. Ticket scalpers do not affect the net subjective value, and therefore, do not inflict an economic harm.
Second, the scalper is not a parasite. A parasite is an organism who benefits at the expense of a host. Consumers do not actually possess the added subjective value until the transaction is complete. Scalpers might, at face value, make it appear that the consumer is losing subjective value; however, if the Groupie purchases the ticket, they will have acquired something of greater subjective value than they had to start with. Parasites sap from that which an entity possesses; scalpers simply decrease the amount that the Groupie acquires. I believe that there is a significant difference.
Thirdly, an argument I probably should have made in the main post... ticket scalpers actually add subjective value through what I'll call the "Hardcore Encouragement Principle". Let me explain.
Say you have two types of Groupies, Softcore and Hardcore. Softcore Groupies find the tickets to be subjectively worth $55; Hardcore Groupies find the tickets to be subjectively worth $75. There are a limited number of tickets to go around. Without ticket scalpers, Softcore Groupies-- who generate less subjective value off each ticket sale-- will deprive some Hardcore Groupies (who would have generated a much greater amount of Subjective Value) of the tickets. Scalpers, however, provide a barrier to entry that makes it much more worthwhile for Hardcore Groupies. If Andrea and I were competing for tickets to see a performance of Don Giovanni (and let's assume, for the sake of argument, that Andrea cares far less than myself about the opera), the implementation of ticket scalpers into the system would make it far more likely that I would be able to acquire a ticket, which is good, since I would generate far more subjective value from that ticket than she would.
I think I understand. The scalper would be taking away potential value of the customers for his own personal gain. The utility question to be argued then is something like: Does an individual gaining profit by taking away from society contribute to the general good or take away from it? Is this a business ethics argument – to what limit of reducing value in the name of gaining profit is justifiable? I guess if we are calling it “libertarian,” we cannot but expect in principle that business people must earn money, but ethically there may be good and bad ways of doing it.
I'm not buying it. If I'm paying $10 more for the ticket, I am being sapped of something I have before the transaction.
By the way, I was not denying that real scalpers provide a service. It was your imaginary scalper that I was aiming at. Why would a rational agent with sufficient knowledge ever deal with such a character if he could buy the ticket directly for less? The Hardcore Encouragement Principle may change matters. But it may also be patently unfair. I may be a hardcore fan but poor while you are a softcore fan and wealthy. I'm priced out even though I would derive more subjective value from the experience than you would.
The extra $10 of value is being taken from you, but it’s conserved in net value and benefiting someone else. The scalper’s interests (making a profit off you) and your interests (seeing the band) are both legitimate. It’s just give and take; your loss is another’s gain. Why should you not want to spread the wealth?
Just kidding.
Dr. Papazian’s right; any rational person would not choose to buy from the scalper if he could get the same thing for a lower cost. The interest of the scalper to take advantage of you, especially if you are a hardcore fan and more willing to shell out additional money, is unfair for the your interest, though not irrational by any means for the scalper’s interests. With the Hardcore Encouragement Principle, you, the hardcore fan, are willing/able to contribute more value than a softcore fan, and scalpers push the price of the tickets up to reach only those willing to pay the higher prices. It seems like a win all around – the band still gets the money either way, the scalper gets a pay off, and you get to see the band play. But because you have paid more than you could have, and the scalpers are ripping you off, you who in spite of your strong desire to see the band, are harmed. Yes, maybe you cannot even afford the new jacked up prices, in which case there is no losing or gaining of value to anyone. Presumably, in a real-world case, the hardcore fans would not really need the scalpers to keep away the softcore fans, as they would be motivated to get at the front of the line to purchase tickets, at the direct price. The ones that most want to see them, who can contribute the most value, would be the ones to get the tickets as soon as they are available, not those who are less motivated. The scalper then is not needed – though the poor guy is kept from making a little profit for himself. Although, maybe the scalpers are even more motivated than you, and then they purchase all the tickets ahead of you, inevitably keeping even the hardcore fan from buying a ticket at the lowest cost. Bad for you all around, good for the scalper.
Unfortunately, I will be unable to respond to everything due to the amount of content in all the contents. However, it sounds like this will certainly merit a follow-up blog post at some point.
Dr. Papazian,
"I'm not buying it. If I'm paying $10 more for the ticket, I am being sapped of something I have before the transaction. "
I maintain that this is not correct. Before the scalper transaction, the Hardcore Groupie had $60. After the transaction, he had $75. He or she still netted $15 of subjective value.
A rational agent with sufficient knowledge would not buy from the scalper unless the scalper was the cheapest avenue and the transaction would benefit the agent. As I mentioned in one of my comments, it is implied (I made it explicit in the comment) that there is a limited supply of tickets. Once they are all gone, if you want to attend, purchasing from the scalper-- if you are a Hardcore Groupie (which now merits being referred to as a "technical term")-- is still a profitable endeavor.
It's difficult to determine the exact amount of subjective value added by the Hardcore Encouragement Principle, but I would argue that there is at least some value added. Most people would rather go to an event with others who are deeply passionate about(or at least attach some high degree of subjective value to) that event. Hardcore Groupies to a philosophy club meeting at Landmark are more likely to promote the overall atmosphere than Moriarty, who might attach a low subjective value to the ordeal and go simply for the free ride to tasty pastries.
Even if the Hardcore Encouragement Principle only adds $1 of net value, it nevertheless seems to tip the scales of net value in favor of the scenario involving the ticket scalper, unless that scenario significantly lowers the subjective value of the tickets for the purchasers (who might, for example, have an irrational fear of ticket scalpers, not understanding that they do not use surgical instruments).
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