Within a few moments, a massive man in a Mets hat offered him two tickets for $450. It seemed like a lot, but Arakelian accepted almost immediately. And as I watched him enter the Beacon — these tickets worked — I was struck by the economic oddness of the whole experience. Tom Petty is a scalper’s dream. He may still be able to sell out Madison Square Garden, but he often prefers smaller venues like the Beacon, where there is a large demand for a shorter supply of tickets. Petty also insists on keeping tickets below market price. And while I can see why a veteran artist would try to accommodate his fans, I also wondered why Petty and his promoter would price tickets so low when there were clearly people willing to pay much, much more.
Few products are so underpriced that an entire subsidiary industry exists to take advantage of the discrepancy. When there is excess demand for a new car or phone, some people might sell theirs at a markup on eBay, but there’s nobody across the street from the dealership or Best Buy offering it right away for double the sticker price; there certainly isn’t an entire corporation built on exploiting companies’ failure to properly price items initially. Yet concerts and sporting events consistently price their tickets low enough that street scalpers risk jail time to hawk marked-up tickets, and StubHub makes hundreds of millions a year in revenue.
Most concertgoers don’t usually consider ticket prices as incredibly low. After barely keeping up with inflation for decades, concert prices have risen wildly since 1996, or around the time when baby boomers, who helped start the industry, aged into a lot more disposable income. (It was also around this time that Internet piracy made the music industry more reliant on concert revenues.) These days, prices can seem incredibly high. Barbra Streisand, who charged more than $1,000 for some seats at a concert in Rome, inspired so much anger that she canceled the show. Yet to an economist, the very existence of scalpers and companies like StubHub proves that tickets are far too cheap to balance supply and demand. Pascal Courty, an economist at the University of Victoria, in Canada, who has spent the better part of 20 years studying the secondary-ticket market, has identified two distinct pricing styles. Some artists, like Streisand and Michael Bolton, seem to charge as much as the market will bear — better seats generally cost a lot more; shows in larger cities, with higher demand, are far more expensive, too. (If you want to catch Bolton on the cheap, head to Western New York.) The second group comprises notable acts, like Bruce Springsteen and Pearl Jam, that usually keep prices far below market value and offer only a few price points. An orchestra seat to see the Boss in Jersey costs only about $50 more than the nosebleeds in Albany.
Springsteen’s style might seem more altruistic, but performers who undercharge their fans can paradoxically reap higher profits than those who maximize each ticket price. It’s a strategy similar to the one employed by ventures like casinos and cruise ships, which take a hit on admission prices but make their money once the customers are inside. Concert promoters can overcharge on everything from beer sales to T-shirts, and the benefits of low-priced tickets can accrue significantly over the years as loyal fans return. In part, this explains why artists like Springsteen and Petty are content to undercharge at the gate while others, perhaps wary of their own staying power, are eager to capitalize while they can.
Article source: http://www.nytimes.com/2013/06/09/magazine/the-secret-science-of-scalping-tickets.html?partner=rss&emc=rss