Friday, August 9, 2013

The Market and Concert Tickets

I often hear or read people complain about how it is such a travesty that people can buy concert tickets with no intentions of attending the show and sell them for double the price originally paid.  When I see these statuses or tweets I can't help but think of how this is a perfect example of the market making corrections.

When considering this issue we must examine supply and demand.  The band selling the tickets to certain venues has a supply ceiling, this is obviously caused by the venue's capacity.  This causes a shortage of tickets and therefore prices have to increase in order to correct for this shortage.  Since the producers (the band in this situation) cannot increase the price on their own a market opens up to people clever enough to buy tickets and resell them at a hefty profit.

How could the problem be solved?  There needs to be an increase in supply (more seats) or an increase in price.  Often times the only option is an increase in price.  This would lower the quantity of demand to the amount where supply and demand are closer to equilibrium.  Obviously the band will never be able to perfectly guess which price will be in perfect equilibrium but the answer for this problem is increasing prices.

Increasing prices will discourage people from buying unwanted tickets and reselling them in two ways. First, with increased prices the buyer has to invest more money into these tickets which, if they are truly unwanted, becomes more of a risk because if he does not sell them he can now endure a greater loss.  Second, the profit to be made will be less.  If a ticket is demanded at $200 and you can buy it at $100 that is $100 profit.  However, if it is $150 dollars that is less profit which makes the added risk less worthwhile.

What all this will do is decrease the amount of people willing to buy unwanted tickets in order to make a profit and get tickets to the real fans at a lower cost.  It will be at a lower cost because they will be getting them at the actual price instead of the scalper's price.  So, when people complain about this you can tell them it is the bands fault for charging too low of a price and this is just the market correcting itself because of a shortage.

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