Online ticket prices and monopoly power

A recent post of mine examined the market for table reservations in restaurants. High-demand restaurants with long waiting lists for tables could raise prices to clear the market. For possible reasons discussed in the article, they don’t do this, leaving the door open for third parties to buy and sell reservations for a profit.

The same economics apply to the sale of third party concert tickets with additional fees. With popular unrest over ticket prices for overcharged events, recently epitomized by the Department of Justice’s lawsuit against Live Nation and the passage of the Ticket Act in the House of Representatives, it is instructive to look at the economics of ticket sales by third parties. . Although the complaint issued by the DOJ and 29 attorneys general is multi-faceted and addresses some of the practices of Live Nation and its subsidiary Ticketmaster in several markets, but the discussion of the primary ticket market is relatively devoid of this analysis.

Popular artists, like Taylor Swift, have a monopoly. They are the sole producers of a good that is in high demand and can therefore earn economic returns. Ticketing companies exist because of the enormous transaction costs that artists, their agents, promoters and venues would incur to find all the fans interested in attending a show and sell them a ticket at an acceptable price.

If artists and venues set too low prices for their shows, there will be more ticket applicants than tickets. This is what gives third-party sellers some leeway to confirm fees at the end of the sale – artists are not fully capturing potential rental prices from fans and the new price with additional fees better represents actual demand.

The online crash which occurred when Taylor Swift’s “Eras” concert went on sale in November 2022 is a demonstration that the quantity demanded far exceeded the quantity supplied at the original, or “face” price. Therefore, there was a shortage of tickets for the indicated price.

To be fair, third-party intermediaries like Ticketmaster typically add additional fees to the nominal price to cover their costs and earn a fee for assisting with distribution. However, the power they have to add these fees to the final sales price mainly comes from the artists’ popularity artist monopoly power – not their own.

To take a baseball example, if you wanted to go to a regular season game at Camden Yards in Baltimore in 2018, you could confidently skip purchasing the tickets online and buy them at the gate right before you enters the park. Because the Orioles won only 47 of their 162 games that season, there was not much demand for tickets. Third-party sellers did not have much power to increase the sales price.

Given all this, the extent to which the additional costs vary by artist or show may be determined by the popularity and demand for tickets. The additional cost to see the Dave Matthews Band at Jiffy Lube Live in Bristow, Virginia is expected to be higher than the additional cost of seeing a local DC band without much of a national presence at the 9:30 club. Simply put, shows that are in higher demand will incur higher costs and the lower priced tickets are, the greater the expected additional costs.

Economists have long debated the economics of ticket resale by third-party brokers and scalpers (see a great EconTalk podcast on the subject here). From the insight provided above, a key question for economists arises: if the artists have monopoly power, why don’t they exploit the monopoly rents? Why leave some of the profits to third party sellers or scalpers to collect for themselves?

One reason the literature The problem is that late market artists and promoters cannot profitably sell tickets at higher prices because they will be undercut by third-party brokers. To maximize profits, they should only sell at one price in the early market. Other explanations include artists who give fans more surplus on ticket sales to encourage spending on other items, such as merchandise. To avoid leaving profits on the table, promoters often give tickets to third-party sellers in exchange for a cut of late market sales. Whichever way you look at it, higher ticket prices result increasing demand and inelastic supply.

Overall, ticket resale is likely to increase efficiency, that is, the total profit from trading in the marketplace. Concertgoers who are either unaware of this opportunity or don’t know they want to take advantage of it until the show is close benefit from the existence of a vibrant resale market. Take the businessman who bought tickets to see Taylor Swift from a woman for $20,000 on the resale market.

Policymakers should keep this in mind when considering actions to combat “junk fees” or ticket prices that are considered “too high.” If policies make market transactions more difficult, efficiency is likely to decline without any offsetting benefits.

As is often the case, a scene by The Simpsons offers some wisdom here: in season 5, Homer sleeps in line a week in advance to get tickets to an in-demand show. He excitedly exclaims, “I’m second in line, and it only took me a week off work!” A passerby comments: “With the money you would have earned working, you could have bought tickets from a scalper.” Homer responds, “in theory, yes… jerk.”

Giorgio Castiglia is a program manager for the Project on Competition at the Mercatus Center and a PhD student in economics at George Mason University.