Is Ticketmaster Trying to Eliminate Secondary Ticket Sales?

If you have ever sold even tickets through the online resale market StubHub, then you may have received an e-mail last week about the dangers of paperless tickets. It cautions that companies "like Ticketmaster" are moving to restrictive paperless ticketing systems, which could kill the secondary market for tickets. Consumers should, indeed, worry -- and the Justice Department should consider stepping in.

For starters, how would these restrictive paperless tickets work? According to the Fan Freedom Project, a group speaking out against this product that StubHub links to in its email, there are essentially two kinds:

Restricted transfer (closed-loop system): Primary ticketing agencies have sole control over sales, restricting the transfer of tickets and allowing them to be resold only on their own proprietary exchanges - and with their price restrictions which are often unrelated to the market value of the ticket.
Prohibition of ticket transfer: You purchase paperless tickets with a credit card and must provide the same credit card and a photo ID at the event venue. A swipe of the credit card at the gate produces a slip confirming the location of the reserved seat. The ticket cannot be transferred, sold or given away to another consumer.

Either of these systems would make consumers worse off. The restricted transfer system would allow Ticketmaster to extend its near monopoly of ticketing to the secondary market. It would control the fees, prices, and processes for resale of tickets. But general prohibition would be even worse. That would eliminate consumers' rights entirely to transfer or sell a ticket.

From Ticketmaster's standpoint, of course, restrictive paperless tickets make great business sense. It already controls around 80% of the primary ticketing market. Why let StubHub or other secondary market firms profit off of their tickets after they've been sold? Through restricted transfer, it can obtain monopolistic profits on secondary market transactions as well. Through prohibition of ticket transfer, it can make sure that no one can buy a ticket in the secondary market for cheaper than any remaining tickets unsold by Ticketmaster. This would ensure that the company don't lose as much money on unsold tickets.

These practices might be of particular interest to the Justice Department, because they appear to be anti-competitive. Ticketmaster controls the vast, vast majority of the primary ticketing market. As a result, it can virtually control or eliminate the entire secondary market through restrictive paperless tickets.

What reasons might Ticketmaster have to argue that paperless tickets could benefit consumers? One could be the joy of going paperless. Paper goes a little more out of style each day as mobile devices, tablets, and computers store and transmit all the data we need. Why bother bringing a ticket if you can just swipe your credit card or iPhone at the entrance of a stadium for admittance?

You could also argue that paperless tickets could have security benefits. It's not hard to imagine the damage that could be result from a terrorist attack at a packed stadium. Electronic tickets could eventually be developed to include security measures, similar to those used by airlines. Instead of a "no fly" list, you could imagine a "no stadium event" list.

The question, then, is whether such potential benefits to consumers outweigh the harms. Even if they do, however, there still may be ways to allow for a competitive secondary market with electronic tickets by making them less restrictive. A ruling by the Justice Department should provide a framework where such benefits can still be enjoyed without the anti-competitive side effects due to restrictions by primary ticket providers.