Tuesday, February 8, 2005 - The Progress & Freedom Foundation Blog

Concert tickets: there otta' be an auction

Ardent U2 fans are up in arms over a fan club ticket pre-sale that went bad, at least from their point of view: most of the premium tickets ended up in the hands of brokers, who immediately offered them for sale or auction on other sites for many times face value.

In this age of Internet commerce, my question is why tickets have a "face value" at all any more? Why aren't all tickets auctioned off over the Internet? We know that a properly constructed and conducted auction will yield an equilibrium that maximizes efficiency for both producers (rock bands, baseball teams, theater owners) and consumers (rock/sports/theater fans). By contrast, the "set price" method now used for allocating tickets suffers from at least two problems: first, efficiency is

not maximized because there is money "left on the table." Some consumers would pay more for a ticket because they value it more -- proximity to Bono is worth a great deal to some people. We know that there is money "left on the table" because -- at the one extreme -- ticket brokers exist and -- at the other -- some seats go unsold. The second problem relates to the ticket broker phenomenon described in the U2 ticket sales story. These arbitrageurs collect a surplus that you'd think U2 would want to capture.

The current crude methods U2 is using to effectuate price discrimination -- pre-sales to fan club members, tiered pricing for better tickets -- are vastly inferior in registering intensity than an auction-driven price system. And, of course, if they have a moral predisposition to getting low income fans better tickets, they can always set aside some tickets for means-tested distribution (or use some other proxy like donating them to a Boys' or Girls' Club).

So, my question is: What aren't tickets auctioned off? Is it too hard to break the convention of set pricing, even though there would be clear gains to consumers and producers? Is it something to do with long-term contracts with Ticketmaster (but why wouldn't Ticketmaster want to do this?)? [OK, that last suggestion is there just because Ticketmaster has always bugged me.]

posted by Ray Gifford @ 2:23 PM | Economics