Live-Event Ticket Prices

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When buying tickets for a concert, theatre performance, or sports event, you have most likely gone through, or at least seen, scalpers reselling tickets second hand. In this weeks podcast review, I explore Freakonomics podcast, “Why is the Live-Event Ticket Market So Screwed Up?” produced by Stephen J. Dubner. He explores the hidden market of ticket sales to live events, an anomaly of a market in comparison to most. Why is it so different? Alan Kreuger, an economist professor at Princeton University, explains that this market deals with experienced good, or goods where an emotional connection is the product. So not only is this product different from others, but then throw in second hand scalper markets, and you face a conundrum. An example Eric Budish, who wrote a paper on the ticket market, used is surrounded by the idea of rent-seeking organizations, or those who are profit seeking without social value. The example used is if a ticket is sold for $50 by the artist, but is clearing the market at $500, then where does the extra $450 go? Essentially, the idea behind the live event ticket prices is a sensitive balance between everyone behind the scenes, from producers, to artist, to second hand sellers. One might easily ask, then, why is this allowed to exist?

Sandeep Baliga, an economist from Northwestern, explains how second hand markets can be mutually beneficial, because they act as insurance policies. As a safety net in case one cannot attend an event, this works well. In terms of automated bots buying tickets from the primary market, this is where things get interesting. Eric Budish explains how this is competition not based on pricing, but instead based on speed. Milliseconds are what matter here, not the actual price. When it comes down to pricing, Ticketmaster is the largest primary market distributor in the world, yet they claim they are the industry that prices their product the worst. David Marcus, the head of music at Ticketmaster, explains why the ticketing value chain is so opaque. He explains the connection between themselves, venues, and clients all each have their own incentives that affect the pricing of tickets. A manager negotiates with a promoter, who has to take a risk with down payment for the right to present the artists event at a venue. So the artist gets an advance, then the promoter has to figure out how much ticket prices are going to be based on seats available, production costs, and the advance. Then the promoter also has to hire a company to distribute the tickets as well. This includes pricing and fees that are included as well. These service fees, which everyone absolutely adores, since they can sometimes be up to 100% of the original ticket price, is then spread around the chain just mentioned, going to the venue as well as the ticket distributor. Ticketmaster also claims that the bad P.R. is actually good for them, but Dubner points out that they also seem to be doing the bidding of these other parties involved. He states it is a bizarre ecosystem, where prices want to be kept low for appearances yet maximize profits still. Hence the opaqueness of the transactions.

Dubner then interviews two broadway producers, one who produced Kinky Boots, Hal Luftig, and the other who produces Hamilton, Jeffrey Seller. Dubner provides some insight to what the costs of making these large productions are, and how livid the producers are because of the second hand market. They explains how at one point, up to 70% of tickets were bought by automated bots. Combine this with their ideology to focus on availability to consumers, those who can come back and see multiple shows, spread the greatness of the musical by word of mouth, and the producers are clearly unhappy. Consumers and stakeholders are the ones being hurt by this, all of those who took the initial risk see so much less of the benefits, while those who take no risk reap the rewards. One small way to counteract this has been to increasing prices on all tickets, but also providing tickets to students, or those in a lottery for only $10 at the same time. This helps combat both problems.

Ken Lowson, one of the earliest implementers of the automated bots, talks about how this system has been going on before the internet was even around, and has only continued on to this day. Lowson even explains how now promoters or team owners can get in on this as well, selling their unused tickets they received behind the scenes as well. Even today, after his middleman scalping company was destroyed due to wire-fraud charges, he is trying his best to help fix the situation, yet no one seems interested in trying to fix it. He approached primaries, teams, promoters, and managers, yet no one wanted his free help. Budish explains one possible fix, much like how airfare is specific to each person, making tickets more personal as well, essentially banning resale. David Marcus also talks about the auction system, which worked extremely effectively in matching the resale prices, but problems arose when consumers didn’t enjoy this method. Other methods to attempt to fix this include using blockchain to register and track personal tickets, or using a program called Verified Fan to sort if the consumers is going to use the ticket for personal use or to resell. Yet this is still not perfect, consumers still cannot always get tickets from primary markets.

Personally, I found this to be most interesting, and unique. The ticket resale market is one that has a balance between demand and price, through an emotional connection. It is difficult to price tickets because of these emotions, so artists, combined with their desire to maintain public persona, have to price tickets low, yet still end up benefiting from second hand markets, who drive prices insanely high in comparison. And, as consumers, clearly people are buying tickets that are this expensive, meaning demand isn’t waning under high price drives. It creates such a unique ecosystem in my opinion.