My last post explored the restaurant table reservation market. High-demand restaurants with a long list of tables can raise prices so that the market can clear easily. For reasons that may be discussed in the article, they do not do this, leaving the door open for third parties to buy and sell reservations for profit.
The same economics apply to third-party concert ticket sales that contain add-on fees. In light of the popular uproar over premium event ticket prices, fueled most recently by the Justice Department’s lawsuit against Live Nation and the passage of the House Ticket Act, it’s instructive to look at the economics of third-party ticketing. . Although the appeal issued by the DOJ and 29 different federal attorneys and deals with a number of Live Nation and its Ticketmaster subsidiary in different markets, its discussion of the main ticket market does not have this analysis.
Famous singers, like Taylor Swift, own a monopoly. They are the only producers of good things that are in high demand and they are able to get economic rent because of this. Ticket companies exist because of the huge costs of artists, their agents and promoters, and the places they can go in to find all the fans who want to attend a show and sell them a ticket at an acceptable price.
If artists and venues price their shows too low, there will be more ticket seekers than tickets. This is what allows third-party sellers some freedom to attach payments at the end of the sale – artists don’t take the full potential rent from fans and the new price with additional payments better represents actual demand.
I internet crash What happened when Taylor Swift’s “Eras” concert went on sale in November 2022 is to show that the amount demanded far exceeded the amount supplied to a large extent at the original, or “face” price. Therefore, there was a shortage of tickets at the specified price.
To be sure, third-party distributors like Ticketmaster often add fees on top of face value to cover their costs and get a kickback for helping with distribution. The power they have to add these costs to the final sale price, however, comes mainly from the artists’ popularity – for the artist power to rule – not theirs.
To take an example from baseball, if you wanted to attend a regular season game at Camden Yards in Baltimore in 2018, you could confidently skip buying tickets online and buy them at the gate right before entering the park. Since the Orioles won only 47 of 162 games that season, the tickets weren’t in great shape. Third-party sellers did not have much power to raise the selling price.
Given this, the extent to which supplement fees vary by artist or show may be driven by popularity and ticket demand. Additional fees for seeing the Dave Matthews Band at Jiffy Lube Live in Bristow, Virginia can be expected to be higher than additional fees for seeing a local DC band without much of a nationwide presence at the 9:30 club. Simply put, the more in-demand shows will have higher fees and the more tickets are priced lower, the higher the expected add-on costs.
Economists have long discussed the economics of ticket resale by third-party sellers and “scalpers” (see a great EconTalk podcast on the topic here). An important question for economists follows from the understanding given above: if artists have a monopoly, why don’t they hold a monopoly? Why leave any profit to third party sellers or scalpers to collect for themselves?
One reason books what is offered is that artists and promoters cannot sell tickets at a profit in the late market at high prices because they will be undercut by third party brokers. To maximize profits, they should sell at one price only in the primary market. Other explanations involve artists offering fans additional revenue from ticket sales to promote the use of other items such as merchandise. To avoid leaving profits on the table, promoters will often supply tickets to third-party sellers to get a cut of late-market sales. Whichever way you cut it, high ticket prices are available demand increases and supply is inelastic.
Overall, resale of tickets is likely to increase efficiency, i.e. total profit from market transactions. Concertgoers who don’t know about this opportunity or who don’t know they want to take advantage of it until close to the show benefit from the existence of a resale market. Imagine a business executive who bought Taylor Swift tickets from a woman for $20,000 in the resale market.
Policy makers should keep this in mind when considering actions to combat “junk fees” or ticket prices that are considered “too high”. If a policy makes market transactions too difficult, it will likely reduce efficiency without any mitigation benefits.
As is often the case, scene from The Simpsons offers some wisdom here: back in season 5, Homer waits in line a week in advance to get tickets to an in-demand show. He happily exclaims “I’m second in line, and it only took me a week to work!” A passer-by comments, “with the money you could spend, you could buy tickets from a hair cutting machine”. Homer replies, “in theory yeah… jerk.”
Giorgio Castiglia is the Manager of the Competitive Work Program at the Mercatus Center, and a PhD student in economics at George Mason University.
Source link