AAI White Paper on Restrictive Paperless Tickets

The American Antitrust Institute presented the U.S. Federal Trade Commission and several State Attorneys General a 71-page white paper calling for a governmental investigation into restrictive paperless tickets. The white paper was authored by James D. Hurwitz, formerly a policy analyst with the Federal Trade Commission and currently a research fellow of the AAI.

In contrast to a paper ticket, an e-ticket printed on a buyer¹s home printer, or a digital ticket delivered on a smartphone, Ticketmaster¹s Paperless Tickets rely upon the purchaser¹s credit card and ID as proof of purchase in order to gain entry to a live event. Paperless tickets account for only a small percentage of tickets currently sold for live entertainment events, but their use appears to be growing.

The rationale most commonly offered for the move to restrictive paperless tickets is to prevent scalping. Critics, however, aver that the real reason is to enable Ticketmaster and its clients ­– typically, venues, event promoters, and sports teams –­ to capture the lucrative secondary market for tickets to their events and ensure that this market does not face competition from independent re-sellers and resale marketplaces. Controlling the secondary market also enables Ticketmaster and its clients to impose price floors on resellers, thereby ensuring that the secondary market does not undermine sales of unsold primary market tickets for the same event.

This paper finds that transferability restrictions on tickets unjustifiably limit consumer choice and depart from bedrock competitive market principles. The result is a degraded-value ticket, one that the purchaser cannot readily resell, give, or donate to others. The restraints deny ticket holders the “insurance” of being easily able to resell or give away their tickets if they are unable to attend the events themselves. Such strict transferability and resale pricing restrictions also violate reasonably held consumer expectations that they are able to transfer their event tickets as they choose.

In addition, when the dominant seller of primary market tickets, Ticketmaster, promotes the increased use of restrictive paperless tickets for which only it can process resale transactions, competition within the secondary market will be dampened as independent resellers are impeded or excluded. With this loss of secondary market competition, especially for paperless tickets, prices can increase, output decrease, and incentives for innovation diminish.

The paper concludes that, by constricting consumer choice, chilling consumer freedom to transact freely with others, and violating reasonable consumer expectations, the adoption of the broad transferability restrictions undermines a free, fair, informed, and competitive market. As the use of restrictive paperless tickets increases, the resulting consumer harm will become even more substantial.

The concerns presented by broad transferability restraints on paperless tickets are of sufficient weight to merit governmental investigation. Detailed factual inquiry and economic analysis are warranted not only in consideration of possible enforcement action but also to assist legislative or industry efforts to address problems resulting from the transferability restrictions.

About the American Antitrust Institute

The American Antitrust Institute is an independent non-profit education, research and advocacy organization. Since its formation in 1998, the AAI's mission has been to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy. To learn more about the AAI, please visit www.antitrustinstitute.org.

About the Author

James D. Hurwitz has a B.A. from San Francisco State University, a J.D. from University of California at Berkeley Law School and an LL.M from University of London's School of Economics and Political Science. From 1973 to 1978, he was a Deputy Attorney General for the State of California specializing in criminal appeals. From 1978 to 2008, he was an attorney at the Federal Trade Commission's Bureau of Competition and Office of the General Counsel. As an AAI Research Fellow, he has been writing on matters relating to the live event ticketing industry.