Question

Evaluate the case for and against allowing the merger between Stubhub and Viagogo to proceed.

Word limit - 160 words

The market for ticket prices in the entertainment industry

In April 2020, the United Kingdom’s Competition and Markets Authority (CMA) launched an investigation into the £4billion merger between two ticket resale companies, Viagogo and Stubhub. In the past in the UK there were a number of resale companies operating but increasingly Viagogo and StubHub have come to dominate the market. Stubhub is owned by e-Bay and Viagogo, while owned by a successful US Hedge Fund manager, raised part of the £4 billion merger funds from the Walton family, the richest family in the US and owners of the supermarket chain, Walmart.

Before the widespread use of the internet to book tickets for sporting, theatre, music and other cultural events customers would either have to turn up in person at booking offices and queue for tickets or else apply through postal applications. There were always two markets in the sale of such tickets. The primary market where buyers purchased the tickets intended for their own use and a smaller secondary market where these tickets were resold to other customers. Ticket resale companies act as an intermediary to enable tickets bought in the primary market to be resold to people in the secondary market.

In principle the resale market performed a useful intermediary function in enabling tickets that people might not be able to use, because they are no longer able to attend the event, to be resold to people who could attend. Indeed, it is in the interests of the event organisers and performers for this to happen. The revenue that they get from people attending the event does not just depend on the ticket price but also on the other types of spending that might occur on items such as food and drink, event programmes and other forms of merchandising.

Being able to apply online via computers or mobile phones has made the process of obtaining tickets so much easier. The development of the resale companies has also made the resale tickets of tickets easier with these companies enabling sellers in the primary market to easily find eager buyers in the secondary market. Resale companies make their money by charging commissions on ticket exchanges.

For the resale companies and indeed some economists, the existence of this resale market, is to be welcomed. There will always be reasons why buyers in the primary market cannot attend the events and the resale companies provide an easy and cost-effective exchange facility. In relation to tickets sold for events for which the demand is likely to be greater than the available supply, the resale companies allow consumers who may have not been successful in obtaining tickets in the primary market to bid up the prices in the resale market. In this way tickets will go to those people who really value attendance at the event and in this way, prices will reflect what economists refer to as “allocative efficiency”

It is often the case for superstar performers that potential demand for tickets can be many times greater than supply given that the supply is constrained by the size of the event venue. Indeed, ticket prices are often priced at differential levels to reflect this but there is a reluctance to sell all tickets at high prices for fear of damaging their reputations with their fans and supporters. Performers and event organisers would like to feel that they have reputations of pricing tickets that is fair to all customers and means that in the primary market many tickets are often sold at below the true market equilibrium price.

Given this, there is though and always has been a problem in the secondary market for events in high demand in that people might either buy tickets in the primary market with no intention of using them themselves or might acquire tickets from people who no longer want to attend and then sell these tickets on at higher prices . There would then exist a market for speculators (sometimes referred to as “ticket touts”) who could then exploit the opportunity provided in secondary markets where demand is greater than supply to make speculative gains.

For the event organisers and performers this means that their attempts to have a “fair” pricing policy is prevented. Increasingly event organisers have been trying to develop strategies to prevent tickets entering the resale market.

Resale companies have increasingly been criticised and Viagogo, in particular, has attracted opposition from consumer groups and has come under scrutiny from competition authorities. It is argued that they actively encourage ticket touts to capture large shares of tickets in the market and that they seek to employ a range of anti-competitive practices such as manipulating their ranking on Internet Search engines, and for the lack of clear information given to customers in relation to commission rates.

The CMA in the UK’s investigation will consider what action, if any, will need to be taken in relation to the proposed merger between Viagogo and Stubhub.

Answer 1

Answer

The arguments FOR the merger are:

• The merger between Stubhub and Viagogo will lead to less number of portals where the "ticket touts" can specualte.
• The Government can keep a better check on one company (post merger) as compared to two companies' operations.
• There will be more convenience for the customers as there will be one-stop-shop to purchase tickets that are being resold.

The arguments AGAINST the merger are:

• After the merger, the company would become a monopoly and hence could exploit customers more.
• The HHI Index in the market would be maximum (10,000), thus, it would be very exploitative for the customers and would require anti-trust laws from the government.
• The customers will have no choice to compare the prices. Thus, the true fans would lose out as they will have to purchase tickets at very high prices.