Price Caps by Matching Platforms: The Case of Ticket Resales

In recent years, ticket resale platforms have increasingly adopted price caps on ticket trading, a practice often justified as protecting consumer welfare, albeit at the cost of platform profits. However, we show that this self-regulation can paradoxically harm consumers while benefiting platforms, even if consumers are fully rational and indifferent to price fairness. We demonstrate how this result may arise using a two-sided matching model of sellers and buyers, where sellers have a limited supply of tickets and are heterogeneous in their willingness to sell on a platform. The platform collects a royalty fee from each transaction but can impose a cap on the transaction price. We show that capping transaction prices can compel all participating sellers to lower their prices. However, a stringent price cap may drive high-priced sellers out of the market, thereby reducing the seller-side competition. As a result, the average transaction price may turn out to be higher than that in a market with no price restriction, and in certain circumstances, the platform can achieve higher profits. We discuss the relevant managerial and policy implications.

History: Anthony Dukes served as the senior editor.

Funding: This work was supported by the Research Grants Council of Hong Kong [Grant 16505022 from the General Research Fund] and the Fundamental Research Funds for the Central Universities, Xiamen University [Grant 20720251014].

Supplemental Material: The online appendix is available at https://doi.org/10.1287/mksc.2023.0623.