A concert sells out in minutes. Tickets originally costing £80 appear on resale websites for £300, £500 or even more.

For many fans, ticket touts are simply profiteers exploiting other people’s enthusiasm.

The UK government appears to agree. In November 2025, it announced plans to ban ticket resale above face value, and in May 2026, the King’s Speech confirmed a draft Ticket Tout Ban Bill.

But here’s an uncomfortable question. If someone buys a ticket for £80, and someone else willingly pays £300 for it, has anything actually gone wrong?

A stadium concert has 50,000 tickets, all priced at £80. Demand is so strong that it sells out almost instantly. Some fans queue for hours and get nothing. Some buy tickets and resell them. Some tickets are bought by professional touts who plan to resell them at a profit.

To see what’s going on, shrink the concert down. Six fans want tickets, but only three are available, at £80 each. Each fan’s maximum willingness to pay is:

The tickets sell out instantly, and happen to go to Dev, Ella and Finn.

Q1: Why do ticket touts exist?

If every ticket sells out at £80, what does that tell us about the price? In the six-fan example, what price would exactly match the number of tickets to the number of fans who want one?

Why might an artist deliberately charge less than fans are willing to pay?

Q2: Do ticket touts create any economic value?

Suppose Dev, Ella and Finn are free to resell their tickets.

What would you expect to happen? Who gains, and who loses? Measured by willingness to pay, what is the total value of the tickets to their holders before and after resale?

Now suppose instead that a professional tout had bought all three tickets at £80, before any of the fans could. What changes, and what doesn’t?

Q3: Does the highest bidder deserve the ticket?

Economists often argue that markets allocate scarce goods to the people who value them most.

Suppose Dev is a student who has followed the band for years but has very little money, while Amira is a wealthy, casual fan. Is willingness to pay the same as how much someone values the experience?

Is an allocation based on price the most efficient? Is it the fairest?

Q4: Would banning resale above face value solve the problem?

Suppose it becomes illegal to resell a ticket for more than £80.

In the six-fan example, would Dev, Ella or Finn have an incentive to resell at £80? Who is likely to end up with the tickets?

More generally, who would benefit from the ban, and who might lose? Could it have unintended consequences? Think about queues, resale platforms, black markets, and the price the artist charges in the first place.

Q5: How should tickets be allocated?

Consider five possibilities:

Which would you choose, and why? Can any system be efficient, fair, accessible and tout-proof all at once?

Bonus: Is ticket touting rent-seeking or entrepreneurship?

A professional tout spends money on technology, staff and software that can buy thousands of tickets in seconds, before ordinary fans get a chance.

Is this productive entrepreneurship, or a wasteful race to capture profits that would exist anyway? Where would you draw the line?

P.S. Roll up your sleeves and explore the questions. Once you’ve grappled with them for a while, if you’re still stuck, there are graduated hints below, but challenge yourself first! (The answer comes in the next issue. Subscribe to get it straight to your inbox.)

How much is it worth to make it difficult for your customers to leave?

£28 million. That's how much Ofcom fined Virgin Media in July 2026 after finding that millions of customer calls had likely been mishandled between January 2022 and September 2024.

Customers trying to cancel contracts were repeatedly transferred between departments, left on hold unnecessarily or had their calls deliberately disconnected. Ofcom also found that the company's commission arrangements effectively rewarded agents for discouraging cancellations.

This is a textbook example of switching costs. In theory, competition forces firms to offer better prices and services because dissatisfied customers can take their business elsewhere. But switching isn't free. It takes time, effort and sometimes considerable frustration.

And that creates an incentive for firms to make leaving difficult. If the hassle of switching outweighs the expected savings, customers may stay even when a competitor offers a better deal. A firm can retain customers without necessarily improving its prices or services.

There's also a principal–agent problem: employees responding to financial incentives that may be misaligned with customers' interests.

Since September 2024, Ofcom's One Touch Switch process has made changing broadband providers easier by allowing customers to arrange the switch through their new provider.

The bigger economic lesson? Competition depends not just on the freedom to choose, but on the freedom to leave.

Last time, two firms from two countries competed to sell into a third country, and we asked: can a government make its own country better off by subsidising its firm?

Firm 1’s profit is the market price minus its marginal cost, multiplied by its output:

π₁ = (P − 20)q₁ = (100 − q₁ − q₂ − 20)q₁ = (80 − q₁ − q₂)q₁

To maximise, differentiate with respect to q₁, treating q₂ as fixed, and set to zero:

dπ₁/dq₁ = 80 − 2q₁ − q₂ = 0

So Firm 1’s best response is:

q₁ = 40 − q₂/2

The more Firm 2 produces, the less Firm 1 wants to produce, because Firm 2’s output pushes down the price Firm 1 gets.

(This is the same as setting marginal revenue equal to marginal cost, as in #003: Firm 1’s marginal revenue is 100 − 2q₁ − q₂.)

Firm 2 is identical, so its best response is q₂ = 40 − q₁/2.

The firms end up where both best responses hold at once. By symmetry, q₁ = q₂ = q, so:

q = 40 − q/2, giving q = 80/3 ≈ 26.67

This is a Cournot equilibrium: neither firm wants to change its output, given what the other is producing.

It sits between the two extremes. A monopoly would produce 40 at a price of 60. Perfect competition would produce 80 at a price of 20 (equal to marginal cost). Two firms competing in quantities land in between.

With the subsidy, Firm 1’s effective marginal cost is 10:

π₁ = (90 − q₁ − q₂)q₁, so its new best response is q₁ = 45 − q₂/2

Whatever Firm 2 does, Firm 1 now wants to produce 5 more units than before. Firm 2’s best response is unchanged: q₂ = 40 − q₁/2.

Substituting:

q₁ = 45 − (40 − q₁/2)/2 = 25 + q₁/4, so q₁ = 100/3 ≈ 33.33

q₂ = 40 − 50/3 = 70/3 ≈ 23.33

Firm 1 expands, Firm 2 contracts, and the price falls.

The key point: Firm 2 backs off. The subsidy changes Firm 1’s best response. At the new equilibrium, Firm 1 produces more, so Firm 2’s best response is to produce less.

Firm 1’s profit, including the subsidy:

(P − 10) × q₁ = (130/3 − 10) × 100/3 = (100/3)² = 10,000/9 ≈ 1,111.1

That’s up about 400 from 711.1.

Cost to taxpayers:

10 × q₁ = 10 × 100/3 = 1,000/3 ≈ 333.3

Country A’s welfare:

1,111.1 − 333.3 = 7,000/9 ≈ 777.8

Country A is better off by about 66.7. Taxpayers pay 333, and the firm gains 400.

(A shortcut: Country A’s welfare is simply Firm 1’s profit at the real cost, (P − 20) × q₁ = (70/3) × (100/3) ≈ 777.8. The subsidy itself is just a transfer from taxpayers to the firm.)

Who else gains, and who loses?

So where does Country A’s gain come from? Largely from Country B. Economists call this profit shifting: the subsidy moves profit from the foreign firm to the domestic one.

Here’s the subtle part. Why couldn’t Firm 1 just produce 33.33 without a subsidy? Because Firm 2 wouldn’t believe it. Without the subsidy, once Firm 2 is producing 23.33, Firm 1’s best response is 40 − 23.33/2 ≈ 28.33, not 33.33. A threat to produce more isn’t credible. The subsidy makes it credible: it changes Firm 1’s costs, so producing more genuinely becomes its best choice. The subsidy is a commitment device.

If both countries subsidise, both firms have an effective marginal cost of 10, so by symmetry:

q = 45 − q/2, giving q₁ = q₂ = 30

The full table (Country A’s welfare, Country B’s welfare):

Now put yourself in Country A’s shoes:

Whatever B does, A is better off subsidising: it’s a dominant strategy. The same is true for B.

So both subsidise, and both end up with 600, worse off than the 711 each would have had if neither had subsidised. This is a prisoner’s dilemma: each country acting in its own interest leaves both worse off.

The winners are consumers in the third country: the price has fallen from 46.67 to 40. In effect, taxpayers in A and B are paying to give foreign consumers cheaper goods.

There are echoes of this in the Airbus–Boeing dispute. The WTO found unlawful subsidies on both sides, illustrating how government support can produce prolonged international disputes.

Because the argument rests on a lot of assumptions, and most of them are fragile.

So strategic trade policy is a clever idea in theory, but a risky one in practice. It works best as an explanation of why governments are tempted to subsidise, and why those subsidies so often end in disputes.

Call the subsidy s. Firm 1’s best response becomes q₁ = (80 + s − q₂)/2; Firm 2’s stays q₂ = (80 − q₁)/2. Solving:

q₁ = (80 + 2s)/3 and q₂ = (80 − s)/3

Price: P = (140 − s)/3

Country A’s welfare (Firm 1’s profit at the real cost):

W = (P − 20) × q₁ = (80 − s)(80 + 2s)/9 = (6,400 + 80s − 2s²)/9

Maximise by differentiating:

dW/ds = (80 − 4s)/9 = 0, so s = 20

(Check: s = 10 gives 7,000/9 ≈ 777.8, matching Q3. ✓)

At s = 20:

What’s interesting about the outputs? They’re exactly what would happen if Firm 1 could move first.

Suppose Firm 1 chose its output before Firm 2, knowing Firm 2 would then respond with q₂ = 40 − q₁/2. Firm 1 would maximise:

(80 − q₁ − (40 − q₁/2))q₁ = (40 − q₁/2)q₁, which gives q₁ = 40, and then q₂ = 20.

This is called the Stackelberg outcome, after the economist Heinrich von Stackelberg: the firm that moves first gains an advantage by committing to produce more.

So the optimal subsidy does exactly what Firm 1 can’t do on its own: it turns Firm 1 into a first mover. The government is buying its firm a credible commitment.

(And notice: Firm 1 produces 40, the same as a monopolist would. With straight-line demand, that’s always true of the first mover.)

In theory, yes. In a market with few firms and big profits, a subsidy can make a domestic firm’s threat to expand credible, push a foreign rival to back off, and shift profits towards home, by more than the subsidy costs.

In practice, the conditions are demanding: the government needs good information, the right kind of competition, and a rival that doesn’t retaliate. When both sides subsidise, they fall into a prisoner’s dilemma, and the main winners are foreign consumers.

Subsidies can change the game. But the other side can play it too.

“Is Free Trade Passé?” (Paul Krugman, Journal of Economic Perspectives, 1987): one of the economists who developed these ideas explains, in plain English, why strategic trade policy is clever in theory but risky in practice. (Free to read.)

Marginal gains… Answer for today’s question is out in two days… Come back then or subscribe to get it direct to your inbox!

P.P.S.

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