Concerts and sports fixtures underprice their tickets in the belief that this makes them more accessible for the 'real fans' or because promoters earn more from sell-outs.But why does doing these things make sense? Why underprice for "real fans"? Isn't it likely that the "real fan's" demand will be less elastic than the non-real fans, in which case he should be charged more. Also if a dollar from a non-real fan is the same as a dollar from a "real fan" why underprice? Why not sell the ticket to the non-real fan at a higher price, if he is willing to pay more? [If he is willing to pay more, then who is the real fan?] Sell-outs may increase the profits of a promoter but this does depend on how much you have to drop the price to get a sell-out. For example, if a sell-out is 10 tickets and you can only get the sell-out by charging $1 but can sell 6 tickets at $2, why go for a sell-out? Underpricing doesn't seem to be profit maximising.
This doesn't mean the secondary ticket market isn't a good thing, it is. But I just don't see why promoters price in such a way as to give people the incentive to set up such a market.
A friend of mine suggests the following answer to the problem of underpricing. His argument is that concerts historically were underpriced because they were tie-ins for CD sales. The point was to create buzz around the album, cassette, or CD. You do that by having hard core folks line up for days on end and having the news media report on them. This results in huge amounts of free publicity worth way the more in CD sales than concert revenues foregone. Moreover, the kid who wouldn't pay $100 for a ticket might well pay $50 for a ticket and then buy another $100 worth of tie-in stuff while at the arena: t-shirts and posters and such like, that the people willing to pay more for the ticket would never buy. He also points out that a testable hypothesis for his story is that underpricing of concerts would be largest where CD sales are most important. Compare, say, a jazz or classical music concert to pop music.
1 comment:
Ah, lest you forget that most concert promoters are thinking chairs and profits rather than using profit maximization techniques.
What you need to keep in mind also is who the argument is targeted at. Most of the bands who make money from shows tend to be older bands with larger draws who gain less on CD Sales and have a fairly heavily built fan base. You shift from needing publicity for CDs from shows to just charging a higher price for admission because you can and will draw a decent crowd.
Your idea still does work in the general regional touring acts and smaller bands still driving rusted out carpet-layer vans with no breaks. Those shows need to draw the crowd so they intentionally underprice ticket price or cover charge and allow the band to make up the difference in merchandise profits.
The difficult part now is that a big chunk of the consumer culture here is purchasing music via digital format, physical CD sales can be tough to get with narrow margins. You make a better profit selling t-shirts.
Now, if we really wanted to see the going ticket price value, venues would issue all primary tickets into the auction market.
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