Dynamic Pricing for Tickets Displays the Power of Prices

Elasticity: Concert Tickets

Jun 5, 2013    •    1053 Views    •    EST. TIME TO READ: 2 minutes

At 9 A.M. during the first minute of the first day that tickets go on sale for a concert, have you ever experienced a constant busy signal or no access to the website?

The reason might be the price of the ticket. Pascal Courty, an economist who has studied ticket pricing, suggests that lower priced tickets are more attractive to ticket brokers. Using computer programs, they swoop up many of the tickets being sold and then resell them at higher prices.

That takes us to a counterintuitive situation. We really should not be happy when Bruce Springsteen tells us that he will keep his ticket prices low.

According to Jared Smith, the president of Ticketmaster North America, when a star assures us that his tickets are priced fairly (meaning cheap), he is actually making it more attractive for scalpers to buy them. We then have to go to resellers or even to someone outside the theater who is selling them for some astronomical amount. By contrast, when Barbra Streisand offers her “platinum” seats at $1000, scalpers have much less room to raise the price. And yet, according to the NY Times, consumers were so angry with her $1,000 seats that Streisand canceled an appearance in Rome.

As economists, we can explain this counterintuitive situation with the concept of inelasticity. When our demand is inelastic, as with medication or milk, price spikes minimally affect our buying behavior. Knowing that many of us will exhibit inelasticity when we want to attend a concert, resellers double or triple or quadruple the price.

The math of elasticity involves proportions–if price changes by a larger percent than the change in the amount we will buy, our price elasticity of demand is inelastic. By contrast, we exhibit elasticity when we buy much less because of a change in price.

So, we would fare better if entertainers thought more about incentives and inelasticity.

Sources and Resources: Thanks to Planet Money’s Adam Davidson for his fascinating article on ticket prices and then for the reference to Pascal Courty’s research.

 

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