Prasad Krishnamurthy writes for Contra Costa Times, May 6, 2015
On March 2, StubHub, an online marketplace owned by eBay, filed a suit against the Golden State Warriors. StubHub is accusing the Warriors and Ticketmaster of violating U.S. antitrust laws by stifling competition in the secondary market for tickets.
The Warriors’ official response is that they are trying to prevent consumer fraud. So who is right and how will the case impact Warriors fans?
Perhaps surprisingly, how we feel about this case should reflect our views on the impact of rising inequality and gentrification on life in the Bay Area. The legal outcome of the case is uncertain, but the economics are quite clear.
As is common in litigation, both parties are telling half the truth. To keep things simple, suppose all Warriors tickets are of equal quality — they have the same view of the court — and there are two types of fans, die-hards and casuals. The Warriors can make the most money by selling a season ticket package to die-hard fans at a lower price per ticket and selling individual tickets to casual fans at a higher price per ticket.
This kind of price discrimination is ubiquitous in markets and is usually not illegal. In fact, the Warriors sell out all their games, so there’s no evidence of lower sales that usually accompany anticompetitive behavior. But the Warriors also try to control resale by, for example, telling season ticket holders they can only redeem tickets through approved outlets. The legality of these actions is at the heart of StubHub’s case.
StubHub operates a website so that die-hard fans can sell their season tickets to casual fans in exchange, of course, for paying a fee to StubHub. Resale reduces the Warriors’ profits. Why? Because season ticket holders are selling to casual fans — either directly or through middlemen — casual fans will pay a lower price for tickets directly sold by the Warriors.
So the Warriors really are trying to prevent any secondary market from forming, and their claim to be protecting fans from online ticket fraud is disingenuous. What about StubHub? StubHub claims that all fans are better off with a secondary market. But StubHub’s rosy, win-win scenario for Warriors fans is not accurate either.
Remember, the Warriors currently set prices under the assumption that they can limit sales in the secondary market. If StubHub wins its case, the Warriors will offer fewer season tickets and make ticket prices more uniform. The face value of season tickets will rise and the face value of individual tickets will fall.
Fair enough, but wouldn’t a StubHub victory result in exactly what should happen in a competitive market? Well yes, in the way that economists usually evaluate markets, a StubHub victory would be efficient because the fans that are willing to pay the most for tickets will get them.
But is willingness to pay the right way to think about how much fans value a Warriors game? If StubHub wins, then higher prices for season tickets will mean that a number of longstanding, die-hard Warriors fans that used to buy season tickets will no longer be able to afford them. And secondary market sales at well above face value will ensure that the Warriors fans at games will be richer, less diverse, and less loyal to the team.
Prasad Krishmamurty is assistant professor of law at UC Berkeley School of Law.