“The Price Is Right”: Ted Chan, Anju Mathew, Andreas Ruggie

Introduction

We focus this paper on what we felt was the little understood current world of price trends in the
secondary concert ticket market. Since we are all avid music fans in our own lives, we naturally

Team “The Price Is Right”

Ted Chan, Anju Mathew, Andreas Ruggie

That’s the Ticket!

Price Trends in the Secondary
Concert Ticket Market – Final Paper
15.818 Pricing – Professor Catherine Tucker TA: Matthew Selove

gravitated towards popular music concerts as the chosen medium for our case study.

In capacity-constrained markets, we generally find ticket prices increasing closer to the date of
service. A familiar example is air travel. We’ve all seen the price on delta.com suddenly skyrocket to $800
per ticket from Boston to Salt Lake City, simply because it’s the night before the flight and you and your
long-distance girlfriend just decided you REALLY need to see each other tomorrow (ahem – frequent
personal experience of one of the team members). The reasoning generally provided for this unfortunate
phenomenon is market segmentation. While it’s questionable whether or not this trend actually
encourages the remaining seats to be sold, however, that is an examination for another day. Here, we were

5/8/2009

“The Price Is Right”: Ted Chan, Anju Mathew, Andreas Ruggie

interested in exploring whether or not the secondary concert ticket market follows similar consumer-
unfriendly trends (or different consumer-unfriendly trends, as it were...). Ultimately, we sought to
determine through our study whether the current practices of concert promoters and ticket vendors are
appropriate or not, whether they are based on accurate assumptions about consumer behavior, whether
there is any money being left on the table, and finally whether or not anything should be systematically
changed.

Methodology

To gather relevant data for our investigation, as case studies we chose to focus on three different
recent concerts targeting three different audience demographics at three different types of venues, to see if
any similarities arose in terms of price trends. We decided that if we followed the price fluctuations over
time leading up to each concert, we could determine 1) if a dynamic pricing model exists, or 2) what an
optimal dynamic pricing model should ultimately look like.

The concerts that we felt covered a wide enough user base were the Dave Matthews Band at the
Journal Pavilion amphitheatre in Albuquerque, NM on May 5th (what we refer to as “mass market and
stoned” at a mid-sized venue), Pete Seeger’s 90th birthday celebration show at Madison Square Garden on
May 3rd (“old and used to be stoned” at a large venue), and The Killers’ May 5th performance at the
Columbus Lifestyle Arena in Columbus, Ohio (“hip n’ happening” at small venue). Scraping data off of
eBay from completed auctions of ticket transactions for these shows, we consolidated our data into the
categories of face value, sale price, number of tickets, seating, and days until the concert. We then
calculated price elasticity over time.

Findings

Below is a sample of the data we compiled:

 Artist: The Killers Seating: General Admission
Other: Sold out concert Data Points: 36
Event Date: 5/5/2009 Face Value: $42.50
Location: Columbus Lifestyle Arena, OH Fees: $8.45
Total Cost: $50.95
Price Elasticity
1 to 4 days 7.2%
5 to 9 days 18.6%
10 to 14 days 10.6%
Greater than 15 days 47.1%

Price/ Diff. Face Day to

Face Value Sale Price Quantity Ticket Value % change Date Event
$50.95 $59.99 1 $59.99 $9.04 17.7% 2/14/2009 80
$50.95 $85.00 1 $85.00 $34.05 66.8% 3/28/2009 38
$50.95 $150.00 2 $75.00 $24.05 47.2% 4/14/2009 21
$50.95 $159.49 2 $79.75 $28.80 56.5% 4/17/2009 18
$50.95 $53.99 1 $53.99 $3.04 6.0% 4/21/2009 14

60.0%

40.0%

20.0%

The Killers

0.0%
10 to 14 days 5 to 9 days 1 to 4 days

-20.0%
Dave
Matthews
Band
-40.0%
% Change of Sale Price to Face Value

Pete Seeger
-60.0%
Days Left Until Concert Date

As the data for The Killers show indicates, and the data for Pete Seeger and Dave Matthews Band
reinforces more extremely, the prices of tickets in the secondary market tends to decrease quite
significantly in the days leading up to the actual show. This might seem surprising to some (and indeed
opposite to the airline industry), given the horror stories we all hear about mothers not being able to buy
Jonas Brothers tickets for their children due to extreme scarcity and exorbitant, escalating costs. Thanks
to a little research paper the team happened to read about Major League Baseball, however, this trend was
exactly what The Price Is Right expected to find.

Major League Baseball

Andrew Sweeting’s paper on “Equilibrium Price Dynamics in Perhishable Goods in Secondary

Markets for MLB Tickets” explains why ticket prices tend to decline by economically significant amounts
– 25% or more, as the time gets closer to the game. Sweeting’s research supports dynamic pricing models
where prices are adjusted over time, especially those where an initial offer price is higher further out and
then the tickets are offered at lower prices as the date approaches. This is the case because there are
actually buyers who have a higher willingness to pay earlier in the ticket sales process (Sweeting argues
this is due to search costs and the risk of the lack of future availability).

Sweeting argues that declining prices can only be the equilibrium outcome if people are willing to
purchase early when expected prices are relatively high. Consumers should be able to time their
purchases. To support his hypotheses, he looked at two markets. One was StubHub, which has only
posted prices, not transaction prices, and “Market 2” which sounded a heck of a lot like eBay to us.

Two arguments for falling seller demand are:

1) Falling Opportunity Cost and Time-Varying Demand/Revenue Elasticities. To keep it simple,

this can be summed up as meaning as the ticket date approaches, the chances of making a big kill
and finding a high WTP buyer are lower. If tickets are not sold by the end, they are worth
nothing.

2) Learning by Sellers – All customers have the same reservation value for the item, about which
the seller has prior beliefs. Typical pricing strategy starts high, and if they are not sold, then
seller cuts price in 2nd period. If the WTP was higher, they’d all buy and all the tickets would
have already sold!

So why do people purchase early if prices will fall? Two reasons: the first is uncertain future
availability. A prospective buyer is worried that if they don’t buy now, they will lose out. The second
reason is search costs. It costs the consumer time (and time = money) to sit around trying to win an
auction to save some money, or they have to log in again later to get tickets.

Implications and Conclusion

We believe these insights can be applied directly to the live music industry to explain our
findings; scarcity in this case may in fact be a fabrication, and concert promoters may not actually be as
stupid as people think. The question becomes what the implications are for the participants in the value
chain.

As far as concert-goers are concerned, patience really is a virtue. It may be the case that the above
data, if publicized, could potentially re-shape consumer behavior, as fans would simply know to wait until
the last minute to buy their tickets, even for concert by their favorite artist.
 On the other hand, concert promoters and secondary ticket vendors seem to have figured out the
psychology of their consumers quite adeptly. For the time being, we recommend that they continue to
emphasize urgency and lack of availability using whatever “scare tactics” are at their disposal. If we had
additional time for a follow-up study, it would be worthwhile to somehow determine whether or not an
upwards adjustment to prices late in the game would cannibalize upfront sales and destabilize the
equilibrium that concert promoters and ticket vendors seem to have created. But for now, we’re late for a
show…