Maybe it’s because my Radiohead tickets arrived today*, or maybe it’s because I’m going to go see Megafaun tonight, or maybe it’s because I still haven’t finished my Music of 2011 wrap, but whatever it is I have been musing on the economics of concert tickets.

Concert tickets are a strange market for any number of reasons. The cost of a concert is fixed – once you’ve booked the show, your costs as a venue will probably be invariant no matter how many people attend. Therefore, you want to sell tickets at the profit-maximizing price. However, this invariably creates some deadweight loss, as most shows do not sell out. Therefore, there is profit to be made by selling that capacity, but if you sell all your capacity at that single price you will make less profit even though you’ve sold your whole inventory. So the question of price discrimination comes in.

There is also the additional consideration of justice – people engaged with music tend to believe that access to concerts should be as broad as possible, so for some very popular concert prices are often fixed well below the market clearing price, leading to shortages which lead to a vibrant secondhand market, meaning all that deadweight loss gets captured not by venue or performer but by rent-seekers. So on the one hand you have shows that have excess capacity that could be sold but for the difficulty of price discrimination; on the other hand you have shows that have insufficient capacity at any price that wouldn’t be widely decried as extortionary. And this is only discussing single-price shows, like those at the 9:30 Club or the Black Cat – this gets even more complicated for larger venues where different areas of seating cost different prices, from Merriweather Post Pavillion with three-tiered pricing to even-more complex venues.

If you want to know my take (and if you’re reading this, it’s probably because you do) then here’s my solution: an auction. When a concert goes up for sale, there is a day-long window where everybody who wants to go submits a bid – X tickets (up to some limit) for $Y per ticket. When the window closes, the highest bids get the tickets, starting from the top and going down until capacity is exhausted. This method has several advantages:

  • Everybody pays what they can and what they want.
  • The secondary market is effectively neutered – if a reseller bids up to get the tickets, they will still have to sell them at above even their own bid-up price, which very few people will be willing to pay. And if they try to bid for the middle, they’ll find that very few people will be willing to pay a massive upcharge. The margins for the resold tickets will plummet for all but the very, very fewest shows.
  • No stress – rather than sell them “first-come-first-serve” (which results in server-crashing frenzies of page refreshing), people have all day to carefully measure how much they want to pay versus a guess at what price might get them tickets. People would have to weigh their own ability, how much they like the act, what they think other people will be bidding, and how disappointed they will be if their bid is too low, but in the end if they want to bid they will submit a price that will either get them the tickets or have them say “oh, well, I didn’t want to pay more than that anyway.” This way you avoid having agony over too-high prices or shortages cause by too-low prices.

Another idea: you could augment this by a “certified pre-owned” system in which people could resell their tickets either directly or on an exchange managed by the original seller in which they could only be sold for what they were originally purchased for. Therefore, if somebody doesn’t want their tickets or can’t go, etc, they could part with their tickets at zero loss and fans who missed on the first bid wouldn’t feel ripped off paying a little more than they originally did because nobody is making a rent. This could also work with increased security for tickets, ie “only the person whose name is on the ticket can use it” because the tickets would be easily transferrable by the owner.

And what about shows that don’t sell out? Simple: you post the remaining stock at the median auction price, and if any remains as the show nears you lower the price day-by-day or week-by-week until you sell all the capacity. For example, tickets for tonight’s Megafaun show seem to still be available. On the one hand, that makes perfect sense – $12 was probably the revenue-maximizing single price for the Black Cat. But on the other hand, that’s silly! Surely there are lots of people who’d go to see Megafaun for $5! Heck, I’m sure if you charged people just a dollar or two at the door they’d buy a beer or two (which bands often get a cut of), and you’d get tons of people who had no plans that evening who would go to see whatever band happened to be playing at the local club just because it was something to do. You could do this now but the people who paid the original price would feel ripped off since that price was dictated to them. But if everybody just paid what they felt the show was worth to them it would go down a lot easier.

One last benefit of this approach – it would be a huge boon to economics professors and students everywhere! Think about the volume of precise data you’d create about a fully-functioning market you’d create!

Ticketmaster, I’m waiting for my thank-you check. Econ departments of the world, you can thank me in-kind a little down the road.

 

*That’s right – I got Radiohead tickets! w00t!

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