In one of my recent posts, I examined the restaurant table reservation market. Restaurants with high demand and long waiting lists for tables might raise their prices to make the market clear more easily. However, for possible reasons discussed in the article, they do not do so, giving third parties the opportunity to buy and sell reservations for profit.
The same economics apply to third-party sales of concert tickets that include additional fees. Given the public unrest over the pricing of event tickets with additional fees, recently manifested in the Justice Department’s lawsuit against Live Nation and the passage of the Ticket Act in the House of Representatives, it is instructive to consider the economics of third-party ticket sales. Although the Complaint filed While the analysis presented by the Justice Department and the attorneys general of 29 states is multifaceted and addresses a range of practices by Live Nation and its subsidiary Ticketmaster in various markets, the discussion of the primary ticket market remains relatively free of this analysis.
Popular artists like Taylor Swift have a monopoly. They are the sole producers of a high-demand good and can generate economic returns as a result. Ticketing companies exist because of the enormous transaction costs incurred by artists, their agents and promoters, and venues in trying to find all the fans interested in a concert and sell them a ticket at an acceptable price.
If artists and venues price their shows too low, there will be more ticket demand than tickets available. This gives third-party sellers some leeway to add fees at the end of the sale – artists don’t get the full return from their fans and the new price with additional fees better reflects actual demand.
The Online crash that occurred at the launch of Taylor Swift’s “Eras” concert in November 2022 is evidence that the quantity demanded far exceeded the quantity offered at the original price. Therefore, there was a shortage of tickets at the listed price.
Certainly, third-party agents such as Ticketmaster typically add fees to the sales price to cover their costs and generate a return on their distribution support. However, the power to add these fees to the final sales price is primarily based on the popularity of the artists – the artist Monopoly power – not their own.
Take baseball as an example: If you wanted to go to a regular season game at Camden Yards in Baltimore in 2018, you could safely skip buying tickets online and instead buy them at the entrance right before entering the park. Since the Orioles only won 47 of their 162 games that season, demand for tickets wasn’t very high. Third-party sellers didn’t have much power to increase the retail price.
With that said, the extent to which add-ons vary by artist or show could depend on the popularity and demand for tickets. Add-ons for a Dave Matthews Band performance at Jiffy Lube Live in Bristow, Virginia, are likely to be higher than add-ons for a performance by a local DC band without a large national presence at the 9:30 Club. Simply put, shows that are in higher demand will have higher fees, and the cheaper the tickets, the higher the add-ons are likely to be.
Economists have long debated the economics of ticket resale by third-party brokers and “black marketers” (here’s a great EconTalk podcast on the subject). The above findings raise a key question for economists: If artists have a monopoly position, why aren’t they pocketing the monopoly rents? Why should some of the profits be left to third-party sellers or black marketers who can pocket them for themselves?
One reason the literature The downside is that artists and promoters cannot sell their tickets at higher prices in the late market because they are undercut by third-party brokers. To maximize their profits, they must sell at only one price in the early market. Other explanations Artists give their fans more profit from ticket sales to encourage them to spend on other things like merchandise. To avoid losing profits, promoters often give tickets to third parties in exchange for a share of late-night sales. Whichever way you look at it, higher ticket prices result from increased demand and inelastic supply.
Overall, ticket resale is likely to increase efficiency, or the overall profits from trading in the market. Concertgoers who either don’t know about the opportunity or don’t realize they want to take advantage of it until shortly before the show benefit from the existence of a vibrant resale market. Think of the businessman who bought Taylor Swift tickets from a woman. for $20,000 on the resale market.
Policymakers should keep this in mind when considering measures to combat “junk fees” or ticket prices that are considered “too high.” If policies make market transactions more difficult, they are likely to reduce efficiency without providing any offsetting benefits.
As so often, a scene out of The Simpsons offers some wisdom here: In season 5, Homer sleeps in line a week in advance to get tickets to a highly sought-after show. He excitedly exclaims, “I’m second in line and I only took a week off work to do it!” A passerby comments, “With the money you would have earned at work, you could have bought tickets from a bootlegger.” Homer replies, “Theoretically, yes… idiot.”
Giorgio Castiglia is program manager for the competition project at the Mercatus Center and a doctoral student in economics at George Mason University.
