Archive for the Music Category

Is Ticket Scalping Bad? Part 2

Posted in Behavioral Economics, Business, Economics, Entrepreneurship, Music on July 12, 2010 by sicsempertyrannosaurusrex

So, I was told that my last entry is a little bland. Looking back over it, I suppose that’s true, but I still think it is interesting. So what do you do when your audience gets bored with your subject matter? You beat that dead horse until the sky falls down.
I want to explain, graphically, one more aspect of buying a scarce good (before I propose what I think is a better way to distribute concert tickets). Whether you are standing in line for a free show, or paying a premium for seats at an expensive venue, you are forfeiting capital (time, money, and energy). How much you are willing to forfeit is based on tons of stuff – too many things to address (how much you have, what day of the week it is on, how many times you’ve seen them before, what your friends are doing that night), blah blah blah. But essentially, it’s how bad you want to see she show.
Here’s where problems arise: if you would pay $37 to see, let’s say, Julian Casablancas, and tickets go on sale for $25, you might not get one because they are scarce. So wouldn’t it be better if the ticket went on sale at your maximum? That would be better than missing the concert, but not as good as seeing the concert for less than your maximum. The following is a perfect distribution of tickets:

Another thing worth pointing out is that your maximum forfeit is only your maximum – you would probably prefer to pay much less. That’s where feelings get hurt, and probably why my friend gets mad at scalpers. So when you look at the above chart, these are only potential customers’ maxima (ie.. everyone would pay $10 to see The Beatles, but the $10 line would only measure those that would, at most, pay $10 to see The Beatles).
So here is my proposal. This strategy would maximize the total revenue of the show, almost guarantee that every show is sold out, and ensure that everyone at least had the chance to buy a ticket. I would like to see a theater distribute tickets in the following way: On the first day, tickets go on sale for an exorbitant price that no one would pay, then they drop a little everyday until they run out, or the tickets reach a price that only covers the marginal cost.

This would be the perfect real world example of first degree price discrimination – maximizing the revenue by turning consumer surplus into revenue. It’s entirely efficient with no deadweight loss. The ‘problem’ with this, if there is one, is that you, the consumer, want to keep as much of your surplus (as far below your reservation price) as possible – you would have to balance your ticket price with the risk of missing the show, not to mention opportunity cost (what other show could you see for this price?).

I’m interested to hear if any of you have objections to this model.

Is Ticket Scalping Bad?

Posted in Behavioral Economics, Business, Economics, Entrepreneurship, Music on July 4, 2010 by sicsempertyrannosaurusrex

Happy Fourth of July! Here’s a microeconomics entry to celebrate the day:

Yesterday one of my friends commented, “Scalpers are obnoxious and I hate them,” and it really got me thinking… are they? The more I thought about it, the more I realized that ticket scalping isn’t a result of market failure – it’s a organic example of market correction. Here’s what I’m thinking: in a perfect market-clearing situation, every show sells out and everyone who wanted to see the event gets to go. But what happens when way more people want to go, but there are only so many seats? This:

Here’s what’s going on in this graph: D1 is a situation where the demand at face value perfectly fits the amount of people who want to see the show for that price. D2 is a situation where more people want to see the show at face value than there are tickets. D3, of course, is the the Mighty Ducks. Because the amount of tickets is absolute (the 9:30 Club can’t double in size for a popular show), the tickets become scarce when more people are willing to buy them than can fit.

Reselling the tickets at a higher price lowers the demand, narrowing the pool of customers until it equals the maximum number of attendees.

Shouldn’t that money go to the concert venue or the performer?

Well… if they could forecast the market more accurately, they could perfectly price the tickets. Keep in mind that the scalper is absorbing risks – if the show is less popular than he expected, he has to take a loss. Not to mention, buying and reselling tickets is work.

My friend said, “The price on the website is the price I want to pay, and if a scalper is charging three time that, that blows.” If I’m paying $50 for a ticket that says $35, I’m getting ripped off, right? Not really, the venue determined their operating costs to be $35. For $35, everyone gets paid (the cleaning crews, the performer, the electricity bill, etc.). As a patron, you pay all that amount and now your paying $15 for the option to attend. The scalper is, in essence, providing you with the opportunity that you might not have had. “I’ve missed a lot of concerts because of this. And I’m not going to pay anything over ticket price. I’m not going to pay $100 when I’m supposed to pay $15.” My good friend is making several errors here. First of all, what the price is “supposed” to be is actually the venue taking a calculated risk to charge an amount that they think will maximize their utility. Venues will probably err on the side of undercharging you if they risk losing revenue for not selling out. Secondly, yes, you were willing to see the concert (about $15 worth), but other people were more willing to see the concert. Most importantly, by externalizing the clearing price, you avoid having to ask yourself the difficult question: how much am I really willing to lose to see this show?

In some situations, the market can clear without increasing the cash price. This would occur if there was some other forfeit. For example, standing in line. By law, all publicly broadcasted shows, like Saturday Night Live, have to be free to the audience. The way the market widdles down the number of possible attendees is to reward those who are willing to stand in line the longest. Voila, market clearing. This was probably more common in the days before you could buy tickets over the phone or online. The problem now (and the reason we need scalpers) is that overloaded phone lines and maxed-out website bandwidth essentially distribute the tickets by lottery. I remember once I tried to buy a ticket for a Dispatch show, which were to go on sale at 10:00am on a particular day. I went to the website in advance, and hit refresh at exactly 10:00am, and they were sold out. Some folks hit refresh and were able to buy the tickets, but they probably didn’t do anything differently, they just got lucky. Scalpers correct for luck.

Scandis Are Weird: Part Two (Björk)

Posted in Comedy, Geopolitics, Music, ScandisAreWeird with tags on July 3, 2010 by livefreeordeinonychus

On Wednesday, Dirty Projectors, one of my new favorite bands, released their collaborative album, Mount Wittenberg Orca, with Björk. I won’t write too much about the music itself – you’ll have to listen to it yourself to decide if you like it. But, I thought it would be a great chance for me to show you this:

Weekend Update: Bjork

and

Larry King Live: Bjork

Kristin Wiig is a genius. One of the funniest women people out right now. I don’t mean to use proof by example, but it certainly makes me question Aaron’s gender-comedy hypothesis.